China's Great Wall of Debt

January 15, 2018
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. Agent: David McCormick, McCormick Literary.

February 1, 2018
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.

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