China's Alibaba Economy Promises an Escape From the Country's Debt Trap

Doomsday theorists see a Chinese economy mired in debt and destined to fail. The reality is more nuanced, with new consumer and technology companies providing more bang for less debt. There’s no shortage of negative news. Tales of debt-burdened coal mines and real estate developers abound. Rising overcapacity means factory gate prices have been falling for more than two years. Nonperforming loans at the banks have been rising since the end of 2011, and—it is suspected—the reported total is only the tip of the iceberg.

The real situation is not so dire. A rapid rise in corporate borrowing in the years after the 2008 financial crisis has now started to level off. The ratio of debt to equity for companies listed on the Shanghai Composite Index peaked at 159 percent in the middle of 2012 and has now started to edge down. That’s some way short of the 234 percent level in the U.S. on the eve of the Lehman collapse.