China After Mao: The Rise of a Superpower

by Frank Dikötter

The massive investments came without significant change to the economic system. The property bubble that had followed Deng Xiaoping’s southern tour in 1992 had fuelled double-digit inflation, eventually leading to a massive increase in bad loans when speculative investments in real estate turned sour. Combined with the losses sustained by state enterprises, the amount of bad debt was so great that Zhu Rongji had been compelled to overhaul the banking system by setting up four companies to take it over. A new tranche of bad loans was now emerging, as between $500 billion and $750 billion of the country’s nearly $2 trillion in outstanding loans could not be repaid. The official debt, together with bad loans at state banks and unfinanced pensions of state workers, amounted to 140 per cent of economic output, equivalent to the burden that had crippled Japan.