Fast forward to today in Reuters: How one Chinese region shows risks of relying on heavy borrowing
After years of investment in infrastructure, some of it encouraged by the central government, Liaoning is China's only shrinking provincial economy, its population is in decline and its debt is almost three times annual revenues.In addition to its reliance on SOEs, Liaoning was also more reliant on industry, energy and industrial commodities. This was the trigger for Liaoning's troubles, but its development model is shared by most of the country to this day, evidenced by 45 trillion yuan in infrastructure plans for 2017.
Liaoning highlights the risks of relying on repeated borrowing to invest in infrastructure and fuel economic activity - a regular fall-back policy China has used when GDP risks missing annual targets, including in 2016.
It also points to the urgency for China to move away from a reliance on state firms, which for decades provided China’s economic backbone. Most other provinces have reduced their reliance on state-firms to a much greater extent than Liaoning and its neighbors, Heilongjiang and Jilin. But they still wield considerable influence nationwide.
The whole nation is like a giant version of Liaoning, not as fragile, but with a similar risk profile. All of China has a rising debt load and will have similar demographics soon enough. One sector's implosion won't sink China, but the global economy performed relatively well from 2011 to 2017 despite troubles in natural resources. What happens when three or four major problems manifest simultaneously?