China’s local-debt crisis is about to get nasty

Locals in guiyang have a keen sense of the distance between them and everywhere else. Over cold rice noodles bathed in chilli paste and vinegar, an elderly resident of the city in south-west China lists a number of recent economic achievements of his home town—namely, the shortening of travel times to other places. Chengdu, a megacity in nearby Sichuan, is now just three hours away by high-speed rail. Chongqing, another metropolis, can be reached in just over two. China’s Herculean construction of uber-fast trainlines has even brought Hong Kong, the southern financial centre, within a seven-hour ride. These travel times are rattled off with considerable pride. Not long ago they would have taken three to four times as long.

Yet this progress has been costly, and is proving to be unsustainable. Over the past decade Guizhou, the region in which Guiyang sits, has accrued enormous debts through its building efforts—ones which it can no longer repay. Many of the region’s roads and bridges went untravelled over the past three years as covid-19 stopped people moving about. A local bridge-builder was recently forced to extend maturities on its bonds by up to 20 years. The region is also known for its shantytowns. Guiyang is scattered with skyscrapers and green hills poking out from between them, as well as old, crumbling buildings. The government has spent well beyond its means in renovating such dilapidated residences. One shanty renovation in Guiyang, called Huaguoyuan, is among the world’s largest housing projects. The property developer has already defaulted.