Caofeidian lies a three-hour drive east of
Beijing, a Chinese industrial dream jutting into the sea. A decade ago, it was
a pretty coast whose shallow waters were dotted with fishing vessels. Today,
it’s a manufacturer’s paradise in the making, its eight-lane roads connecting
sprawling factories to a vast port. Named after a former imperial concubine, it
was a place of feverish fantasy, where borrowed money fuelled a vast
reclamation effort to create 200 square kilometres of land and build something
new.
When former Chinese president Hu Jintao came
here in 2006, he called it a “treasure of a location” and likened it to “a
piece of white paper, and the best and newest pictures ought to be drawn on
it.”
What he likely did not envision: a giant money
pit, half of whose debt seems unlikely to be paid back.
Caofeidian was to be home to a million-person
eco-city, a massive steel factory, a power plant, an oil refinery and a panoply
of apartments, bus makers, warehouses, lumber plants, a Sino-Japanese business
park, even an “exhibition centre of strategic new industries.” A decade of
spending poured $100-billion into the soil here, the equivalent of the annual
budgets of British Columbia, Alberta, Manitoba and Saskatchewan combined.
But the loans that allowed all that spending
have just 50 per cent odds of being paid back, says an independent research
group that has spent years studying Caofeidian. The stakes are enormous.
Caofeidian was a project of national importance for China, a “flagship,”
according to Jon Chan Kung, chief researcher at Anbound, a Beijing think tank.
“If this project fails, it proves that the major
model driving China’s development has also failed,” he says.
Debt now stands to undo at least some of what
China’s spending has accomplished. Some of the country’s major projects have
done little more than strand vast amounts of invested capital. Debt is just one
of the ticking time bombs in China today. China must also cope with the fallout
from slowing spending in a place where social stability has been largely
defined by one thing: the non-stop accumulation of wealth.
“There will be a financial crisis.
And I feel that the financial crisis is in the near term,” says Anne Stevenson
Yang, co-founder of Beijing-based J Capital Research. “There will be a recession
and then a long period of very, very slow growth. That’s my definition of
collapse. I’m not talking about people running through the streets with
torches. That may or may not happen.”
China has, for years now, become the engine of
global growth. Its building sprees have kept afloat thousands of mines, its
consumers have poured billions into the pockets of car manufacturers around the
world, and its flush state-owned enterprises (SOEs) have become de facto
bankers for energy, agricultural and other development in just about every
country. China holds more U.S. Treasuries than any other nation outside the
U.S. itself. It uses 46 per cent of the world’s steel and 47 per cent of the
world’s copper. By 2010, its import- and export-oriented banks had surpassed
the World Bank in lending to developed countries. In 2013, Chinese companies
made $90-billion (U.S.) in non-financial overseas investments. Continue
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