Some of this money has gone into building bridges, road and other infrastructure. But a lot has ended up in less productive parts of the economy, such as big, inefficient state-run companies. The more dynamic private sector hasn’t benefited as much.
Late last year, Beijing stepped up its efforts to rein in the high levels of debt, which is one of the main reasons the economy is now losing momentum.
Some analysts are skeptical about the Chinese government’s commitment to cleaning up its financial system, especially as the slowdown deepens and the trade war intensifies.
Many provincial governments and state-run firms would struggle to stay above water without regular injections of cheap credit, according to Kevin Lai, an economist at investment bank Daiwa Capital Markets.
Cutting off their credit lines “would have very negative repercussions, like social unrest, layoffs and bankruptcies,” Lai said. That’s a scenario Beijing wants to avoid.
The weaker yuan has boosted China’s huge export industry, as it makes Chinese products cheaper on global markets. But slumps in the yuan have caused headaches in the past.
Amid sharp declines in 2015 and 2016, vast sums of money flooded out of China as investors bet the yuan would keep falling. The crisis forced Beijing to spend hundreds of billions of dollars to prop up its currency.
A rapidly falling yuan could become a vicious cycle, according to Manu Bhaskaran, the founder of Singapore-based research firm Centennial Asia.
“There could be a huge capital outflow and that could feed on itself,” he said.
Beijing appears to have again started dipping into its massive war chest of foreign currencies in recent months to slow the yuan’s declines, according to research firm Capital Economics.
Real estate bubble
Another threat lurks in the country’s overheated property market.
Prices have more than doubled in the past decade, according to research firm Gavekal, stoked by low interest rates and a shortage of housing in major cities.
But the real estate market now “appears to be showing some cracks,” said Aidan Yao, a senior emerging markets economist at AXA Investment Managers. He pointed to some instances of big property developers slashing prices in the face of weakening demand.
“It is only a matter of time before the market cools,” Yao added.
The real estate industry has been one of the few bright spots for China’s economy this year but turn into a burden if it slumps, according to analysts at research firm Fitch Solutions.
“China’s problems are chronic, not acute,” said Derek Scissors, a China expert at the American Enterprise Institute, a Washington-based think tank.
But those moves have come too late or don’t go far enough, raising serious concerns about China’s long-term economic future, according to Scissors.
“Old, indebted economies don’t grow,” he said