The bigger problem, say many here, is not the infrastructure but the debt incurred to build it.
The government’s 4 trillion renminbi ($586 billion) stimulus package was actually a series of government bank loans pumped into the economy on easy terms. Local governments set up “special funding platforms,” or quasi-independent investment entities to borrow the money at low cost, and the money was used to build the airports and train stations and, in many cities, new commercial districts. Many localities used land as collateral to borrow the money.
More highways but fewer cars
But now there is concern about a hidden “debt bomb” among China’s local governments. The debt burden of these investment platforms is estimated to be at least $1.6 trillion (10 trillion renminbi), although some figures put the amount at closer to $2.2 trillion (14 trillion renminbi).
“China has a lot of debt,” said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing. “For China to have an economic crisis is not unforeseeable.”
The main problem, say many Chinese and Western economists, is that while the spending spree has helped sustain China’s enviable growth rate over the years — and helped the country largely avoid the effects of the 2008 global economic downturn — it has also slowed China’s shift from an investment-led growth model to one sustained by consumer spending.
“China sustained its own growth in 2008 by creating a domestic investment boom,” said Patrick Chovanec, who teaches at Tsinghua University in Beijing. “There’s a lot of concern that’s taken place over the last six months with the sustainability of China’s growth model.”
China’s leaders have spoken openly about the need to shift from an investment model to a consumption model. It is part of the government’s most recent, widely touted five-year plan.
Meanwhile, there has been a change in gears. After the Wenzhou train crash and the earlier sacking of Liu Zhijun, the powerful railways minister, on corruption charges, the development of high-speed rail was slowed and the speeds of the trains reduced.
But much of the building boom goes on. Construction cranes dot the skylines of cities large and small. And the bullet train still traverses up and down the Hainan coast, pulling into one ultra-modern station after another, collecting and discharging its few lonely passengers.