CHINA'S GREAT WALL OF DEBT
Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle
by Dinny McMahon
China is poised to overtake the United States, and the rest of the developed world, economically by the year 2030. Or is it? To gauge by this account, Western capitalists can breathe a little easier.
Business journalist McMahon, a longtime China reporter for the Wall Street Journal and current fellow at the Paulson Institute, contends that for all the anti-corruption rhetoric of the Xi Jinping government, corruption is still rampant, adding burdens to an economy already bound by strains of command-economy socialism, free-market capitalism, crony capitalism, and state capitalism, all designations that fail “to sufficiently describe the nature of the Chinese economy.” Suffice it to say that nothing is as it seems: the data are fudged, the numbers untrustworthy and incomplete, and while the government presence is inescapable, there is evidently little coordination among the sectors. One thing that all seem to agree on is that growth is of paramount importance, even if demand does not always approach considerations of supply. For that reason, China has too many industrial facilities, for instance, and too many “shadow cities” and empty housing developments. Even so, McMahon writes, the Chinese government is planning to grow its way out of current problems, including massive, underreported debt, whether through supply-side reforms and expansion into new areas of economic activity or falling by old standbys. The old ones certainly seem not to be working. By the author’s account, consumer dissatisfaction is high, and all the more so the dissatisfaction of investors in failed sectors. If China fails to build its economy and become truly wealthy, he notes, then demographic pressures caused by an aging population will mean that the “nation’s ambitions of national rejuvenation will be postponed for at least another generation.”
The specter of Chinese dominance, McMahon writes, is less daunting than the likelihood of the Chinese economy’s failure. Of considerable interest, especially to investors in the Chinese market.