Audio-book Review
By Chet Yarbrough
(Blog:awalkingdelight)
Website: chetyarbrough.blog
China’s Great Wall of Debt (Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle.)
By: Dinny McMahon
Narrated by: Jaimie Jackson
Dinny McMahon (Author, former reporter for the Wall Street Journal, Dow Jones Newswires, and former fellow of the Woodrow Wilson International Center for Scholars.)
Dinny McMahon lived in China for ten years before writing “China’s Great Wall of Debt”. He is neither the first nor undoubtedly the last chronicler of modern China’s future.
Wealth is a function of the have and have-nots in China. This is a familiar refrain to many who believe it equally describes America’s economy.
McMahon explains how the last twenty years of economic growth in China is a function of real-estate monetization that has reached a mortgage nadir, teetering on the edge of collapse. McMahon notes the difference between America’s real estate booms and busts and China’s is that it has taken America two hundred years to reach its present prosperity while China has done it in less than 3o years. He implies that time difference has benefited America by giving it more tools than China for dealing with economic inequality.
China has a singular party with one leader who has few checks and balances, with a singularly authoritarian governmental organization.
When leadership changes in America, political and economic policies are only incrementally adjusted. In leadership change in China, political and economic policies may be dramatically altered or even abandoned. That truth is evident in China’s transition from Chiang Kai-shek to Mao to Deng Xiaoping, to Xi Jinping.
McMahon’s fundamental point is China’s rapid economic growth is founded on a financial structure dependent on real estate financed by the state and a poorly governed semi-private banking system that artificially inflates China’s assets.
McMahon notes there was pent-up demand for private real estate ownership when all land was owned by the government. That pent-up demand is the source of China’s rapid economic growth. However, in the current market, McMahon suggests real value in that real estate is diminished by a public that is not wealthy enough to afford it. A kind of Ponzi scheme is growing with consumers that are buying land without real collateral but with a ghost banking system that is condoned, if not supported, by the state.
McMahon leaves some doubt about China’s near future collapse because of adjustments President Xi is making in reducing bureaucratic corruption that allows ghost banks to prosper. McMahon also notes that President Xi is addressing the domestic needs of China’s citizens by emphasizing economic growth within China to make them less dependent on international trade. However, McMahon notes Xi Jinping is a singular leader. The question is—what happens when Xi Jinping is no longer China’s leader?
McMahon is not alone in suggesting China may be headed for trouble. Whether shadow banks, ghost cities, and massive loans will be the end of the Chinese Miracle seems less important than what a Chinese economic collapse would mean to the rest of the world.
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