The flaws in the Chinese growth model

Book review: China’s Great Wall of DebtDinny McMahon's book is the last in a long line of attempts to pinpoint flaws in the country’s growth model that could doom it.

Dr Matthew Partridge
By
published
in Features

894-Great-Wall-100

Published by Little, Brown, £20

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For the past two decades pundits have predicted that China's economy will collapse. Instead, it continues to confound expectations. This book by journalist Dinny McMahon is the last in a long line of attempts to pinpoint flaws in the country's growth model that could doom it.

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McMahon focuses on two main areas: the large amount of debt in the Chinese economy and the resistance to further economic reform. In particular, he looks at how the huge shadow-banking system has funded the construction of a large number of ghost towns where estates and tower blocks lie empty. At some point these loans will have to be written off, McMahon argues, causing financial chaos. Meanwhile, economic reform and anti-corruption efforts have met with tough resistance from vested interests.

Although McMahon provides evidence that both corruption and bad loans are a problem, he fails to make the case that they are significant enough to cause an economic collapse. Instead, his alternative scenario of a gradual slowdown in growth as China falls into the middle-income trap in which it is too rich to keep relying on cheap labour but not sophisticated enough to develop new industries looks the more plausible outcome.

Dr Matthew Partridge
Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri

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