While 2024 may be the year of the mighty dragon, debt, inflation and frivolous projects are wreaking havoc on China's economy.
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The 2008 financial crisis marked a decisive turning point in the Chinese economy ? adverse effects of which are still being felt today. Fearing a contagion that would affect their banking system and the detrimental consequences of a decline in exports due to the slowdown in global demand, Chinese officials believed?following the path laid out by the United States?that only intensive monetary creation would cushion the shocks. Chinese banks were therefore strongly encouraged by the state to lend, primarily for the construction of infrastructure that the country did not really need.
A view of the Tianducheng development in Hangzhou (Image courtesy of REUTERS/Aly Song)

The enthusiasm was indeed unprecedented, and enormous sums were dedicated to building several “Little Manhattans,” and “Little Hong Kongs,” a replica of the Red Square, a mini Paris, and other similarly frivolous and costly projects. Chinese investors, both private and institutional, as well as smaller savers, were literally pushed into the arms of intense real estate speculation, leading the country?s banks to commit to mass loans in just five years, equivalent to the loans accumulated by the entire United States banking system. Thi...