Chinese banks: Economic crisis or not, China’s lenders are in good shape. The country’s big listed banks – Industrial Commercial Bank of China (ICBC), Bank of China and China Construction Bank (CCB), all unveiled mid-year balance sheets enviously light on bad debts. Thank China’s rapid growth – and an astonishing $300 billion vanishing act.

That figure is the amount of bad debt the top three banks offloaded in the early 2000s. Back then, the People’s Bank created four asset management companies to scrub away the dirt from two decades of policy-driven lending. But the resulting losses still lurk, out of sight, and are getting harder to ignore.

The plan was that the AMCs would suck out poisoned loans from the big banks, and recover what they could over the following ten years. In return, the AMCs issued bonds, whose interest would be paid from what the AMCs could salvage. Hey presto: the banks were free to lend again.

There was a big catch. The AMCs bought the loans for up to 100 per cent of face value, while recoveries were in the 20-30 per cent range. That means the top three lenders' Rmb1.2 trillion of AMC bonds, which start to mature this year, are likely to be almost worthless. In theory, the Ministry of Finance is ultimately on the hook, but it is unlikely to make good for the banks. The amount due to all three is roughly one-sixth of China’s fiscal revenues for 2008.

Fortunately, two very Chinese alternatives present themselves. One is to reinvent the AMCs as securities firms, giving them an extra income stream, a process that's already underway. ICBC and CCB have even talked about taking stakes in the AMCs, suggesting some kind of debt-for-equity swap – though it’s hard to see how the equity value of these entities could approach the amount owed.

The other is simply to roll over the bonds indefinitely. The amounts at stake aren’t small, though. Besides, the banks are once again lending rapidly at the state’s behest. If new loans too are eventually “evergreened”, banks’ balance sheets could become truly sclerotic - and require further surgery.

Still, China’s rapid development might ease the pain. The country’s GDP has, at current prices, almost tripled since the turn of the century. So long as China keeps growing, and deferring repayment, the off-balance sheet problem will get relatively smaller and smaller. The peculiar $300 billion magic trick might just work after all.

Turkey/IMF: Turkey has turned an apparent defeat into a temporary victory. Earlier this year, a haggling approach to negotiations with the International Monetary Fund left the country without a support plan in the midst of a global crisis. But economic disaster has been steered clear of – and the constraints that come with IMF packages have been avoided. Still, the Turkish economy remains fragile.

Turkey/IMF: Turkey has turned an apparent defeat into a temporary victory. Earlier this year, a haggling approach to negotiations with the International Monetary Fund left the country without a support plan in the midst of a global crisis. But economic disaster has been steered clear of – and the constraints that come with IMF packages have been avoided. Still, the Turkish economy remains fragile.

When Turkey backed away from talks in February, economists warned that the government risked losing everything by putting its credibility with investors on the line. What’s more, the country was missing the best chance in years to tame unremittingly high inflation and spiralling government borrowing costs.

The experts could hardly have been more wrong. Since negotiations were suspended, the Istanbul Stock Exchange is up 79 per cent to the level in January 2008, Turkish government bond yields have reach all time lows and the 5.4 per cent inflation rate is below the central bank’s end-of-year target. GDP is expected to increase by 2 per cent in 2009. A run on the currency is now improbable.

Recep Tayyip Erdogan insisted that Turkey could manage without IMF support. The prime minister might be tempted to pause for an “I told you so”. But he should think twice before gloating.

Turkey’s success is mainly due to factors beyond the government’s control. Equities and bond yields benefited from the global rally in risky assets. And the near halving of the inflation rate is due largely to the falls in the oil price and domestic and foreign demand.

Turkey has avoided cataclysm, but economic conditions remain extremely difficult. Industrial production contracted in June for the 11th consecutive month. The unemployment rate is at 15 per cent and rising.

Turkey’s central bank has signalled that measured cuts in the policy interest rate — already slashed by nine percentage points to a record low of 7.75 per cent — will continue for as long as there is no clear recovery in the economy. But deteriorating public finances — the deficit is set to be 5 per cent of GDP this year — will limit how far down rates can go. The authorities should proceed with caution — with or without an IMF loan.