China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle

Common opinion has it that when the United States is no longer the big gorilla in the world economy, China will take its place. But Beijing correspondent for the Wall Street Journal Dinny McMahon may be on to something the rest of the opinion-makers have overlooked. China's Great Wall of Debt is his contrarian analysis of the fundamental instability of the massive credit octopus that underlies China's astounding economic growth.

With a balanced mix of anecdotal observation and statistical analysis, the book covers the complex system that creates "new money" debt to support the Chinese Communist Party's strategic objectives. McMahon interviews private business owners, former farmers, party bureaucrats and even a newly rich broker of vintage baijiu (the popular Chinese liquor Dan Rather called "liquid razor blades"). Untangling the balance sheets of banks, private and state-owned companies, and recent peer-to-peer Internet lenders, McMahon concludes that China is so awash in debt that any unanticipated hiccup could send it into an economic tailspin--a disaster similar to the United States "great recession" following the fall of Lehman Brothers.

In his travels, McMahon sees firsthand the Potemkin villages of empty apartment towers. He observes the world's largest stamping forge, now idle for lack of business, and bulldozed hills flattened to provide land for yet more unnecessary factories. While admitting that economic naysayers have been wrong about China before, McMahon nonetheless makes a convincing (and surprisingly entertaining) argument that China's day of reckoning may come sooner rather than later. --Bruce Jacobs, founding partner, Watermark Books & Cafe, Wichita, Kan.

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