China's Great Wall of Debt
Shadow Banks, Ghost Cities, Massive Loans and the End of the Chinese Miracle
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- $13.99
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- $13.99
Publisher Description
'One of the clearest and most thorough statements of an argument often made about the country: that its government has relied on constant stimulus to keep growth strong, an addiction that is bound to backfire. Second, he comes closer than any previous writer to covering the Chinese economy as Michael Lewis, the hugely popular author of The Big Short, might do. His analysis is informed but accessible, animated by anecdotes and characters, some colourful, some verging on tragic . . . McMahon is among the most compelling of the many analysts who conclude that China's economic miracle will end painfully' The Economist
The world has long considered China a juggernaut of economic strength, but since the global financial crisis, the country's economy has ballooned in size, complexity, and risk. Once dominated by four state-owned banks, the nation's financial system is a tangle of shadow banking entities, informal financial institutions, and complex corporate funding arrangements that threaten growth, stability, and reform efforts. The country has accumulated so much debt so quickly that economists increasingly predict a financial crisis that could make 'Brexit' or Greece's economic ruin seem minor, and could undermine China's ascent as a superpower. Earlier this year, President Xi Jinping issued an urgent call for reform that gives the country until 2020 to transform its economy - a vaguely-defined objective that most economists agree is unrealistic. Whether or not China will be responsible for the next global recession, as some experts forecast, the fate of its economy will have far-reaching consequences for the rest of the world. Yet the inner workings of China's financial system are still very much a mystery to most outsiders. Now more than ever, as the country's slowing economy is being felt around the globe, it is essential to understand how China allowed its economy to become so mired in debt.
China's Great Wall of Debt is a penetrating examination of the country's opaque financial system and the complex factors - demographic shifts; urbanization; industrialization; a pervasive over-reliance on debt-fueled investments - that have brought the country to the brink of crisis. Anchored by stories of China's cities and its people; from factory workers and displaced farmers to government officials and entrepreneurs, the narrative will take readers inside the country's ghost cities, zombie companies, start-ups, and regulatory institutions as McMahon explains how things got so bad, why fixing the problems is so hard, and what the economic outlook means for China and for the rest of us.
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Colorful characters and solid writing enliven what could have been an arcane discussion of the precariousness of China's economic miracle in journalist McMahon's debut. Though most outsiders believe Chinese economic growth is solidly founded on exports, McMahon reveals the truth: since the 2008 financial crisis, an increase of $12 trillion in bank debt is what has really fueled the Chinese economy. Moreover, many of those loans went to risky enterprises that may never be able to repay their debts, endangering not only China's but the world's economy. "For years," the author writes, "China's unimpeded ascent... seemed inevitable, but it's increasingly clear that that version of the future is unlikely." To back up his thesis, McMahon visits a factory housing the world's largest but largely idle closed-die hydraulic press forge; walks past empty shop fronts in one of China's "ghost cities"; and dines with a Chinese entrepreneur who's chosen to build his business in South Carolina because necessities such as power are cheaper there than in China. The book offers no verdict on this situation's likely resolution, leaving the reader only with the message that fixing it will require a level of "reform, pain and political leadership" of which China's government may not be capable.