On one of my first trips to China in the early 1990s, on the drive from Beijing airport, I remember gazing out at hundreds of workers labouring with little more than shovels on a new highway snaking its way through farmland towards the capital. By the time the Olympics came to the city in 2008, the road had been joined by a second expressway and China had grown into the world’s largest construction market. Last year, it completed the world’s second-highest building: the Shanghai Tower, 632m of luxury offices, designer shops and a high-end hotel.
But there is a bit of folklore about the topping out of skyscrapers: the builders’ ceremonial placing of the final beam often heralds the onset of grim economic news, coinciding with the end of a credit cycle that has funded a frenzy of lending for ever-bigger projects. And indeed, as the economy slows markedly, China is increasingly dependent on credit creation. The share of total credit in the economy is approaching 260 per cent and, on current trends, could surpass 300 per cent by 2020 — exceptional for a middle-income country with China’s income per head. The debt build-up must sooner or later end — and when it does it will have a significant impact on the global economy.
Back in 2008, as the western financial crisis spread, China tried to insulate itself with a big credit stimulus programme to counter factory closures and an accompanying return of millions of migrants to the countryside. By 2011 the growth rate had peaked. Its decline was led by a fall in investment in property, then manufacturing. Subsequent stimulus measures have not al¬tered the trend for long — but one constant is a relentless build-up in the in¬debtedness of property companies, state enterprises and local governments.