As the financial crisis in the United States spreads around the world, China appears to be safe. With government-owned land, higher quality mortgages, a closed financial system and huge foreign exchange reserves, the country is unlikely to face a similar economic crisis.
First, slumps in real estate values, which directly triggered the current credit crisis in the United States, aren't likely to occur in China. In China, the government owns the land, not Chinese homeowners. A homeowner simply buys the right to use the land for a certain period of time.
Another reason why China won't suffer the same fate as the United States: House buyers usually shell out a down payment of 30 percent for their first apartment, and the government requests that buyers of a second home pay 40 percent down. High down payments and low loan default rates have enabled China's banks to keep their troubled mortgage assets under control.
Finally, a similar crisis won't happen in China because the country has a closed financial system and $1.8 trillion in foreign exchange reserves.
So while China is not likely to see a similar financial crisis, the country has to fight a different set of challenges -- how to control inflation when foreign capital is flooding the country as foreign investors bet that the yuan will keep rising -- and how to maintain a robust exporting sector when the rest of the world is slowing.