"The great economic success story of any age..." "The Chinese economic miracle is the story of my generation and probably my children's generation as well." "..the relentless rise of China." "It's like some sort of mad programmer's vision of the future, all those flashing lights." "Now, China's downturn and collapsing shares have caused global financial panic." "FOGHORN BLARES" "But could China's economic woes be much worse than anyone's admitting?" "Another empty factory." "Absolutely nothing going on here." "The economy has been on a relentless and continuous slide in economic growth." "There is no painless exit from this problem." "CHEERING" "However, Britain is forging ever-closer links to China." "It's supposedly a new golden age." "Good business, or mad, bad and dangerous to our prosperity?" "I'm beginning to feel sick." "No ears popping, just a sense of overwhelming nausea." "'The Canton Tower" " China's tallest.'" "Bloody hell!" "Ugh!" "'Almost a third of a mile high...'" "I don't like heights, and I certainly don't like this height." "'..towering above the world's biggest metropolis.'" "Blimey, look at what the Chinese have achieved." "One of its many megacities, 40 million people living in relative prosperity where 20 years ago this was dirt-poor farmland." "From poverty to the world's second biggest economy." "CAR HORNS HONK" "What a transformation." "New railways, airports, roads, skyscrapers." "All built in a few short years." "And China's growth has driven the world's - and ours." "But the economic engine may be seizing up." "In 2014, China's stock market began to soar." "The Shanghai and Shenzhen stock exchanges hit record highs." "It was the mother of all bull markets." "Everyone wanted a piece of the action." "90 million ordinary Chinese stormed in, including Zhu Qiushi." "My colleagues, my friends, told me that, er, "OK, the index is getting" ""very, very good right now, and some stocks is getting, like, crazy."" "It seemed a one-way bet, underwritten by the government." "The market was going up, people just started piling in." "Fundamentally, it was all just about the idea that the Chinese government wanted the market to heat up and therefore they would never let it crash." "But in fact, Beijing had lost control." "People were buying stocks with borrowed money, provided by so-called "margin lenders."" "We actually had underground margin lenders that were created, that started feeding this, so they were outside the normal regulatory structure, and so they were off the radar screen." "So you think the authorities weren't aware of these basically unofficial lenders?" "I don't think they had an idea of the magnitude of how important they had become at that point." " NEWSREADERS:" " 'A financial earthquake in China - the stock market has...'" "'The main index in Shanghai closed today more than 8% down...'" "'Hundreds of billions of pounds are wiped off shares around the world...'" "June 2015." "China's stock market crashed." "We can see a big depression from June 8th, and then it's getting worse and getting worse, and here is the bottom." "I lost half of my total one-year income in the stock market." "Yeah, so it's horrible, it's, er...hard to imagine." "For over 30 years, the Chinese government had seemed to have, well, an immaculate economic touch." "But now, Beijing floundered." "You would have contradictory policies released by different agencies on the same day." "OK?" "And so they hadn't even bothered to pick up the phone and talk to each other, apparently." "So this creates a lot of concern about who's running the show there, who's setting financial policy in really one of the world's most important economies." "Since last summer, China's money markets have been dangerously volatile, spreading anxiety around the world." "China's stock market boom and bust was eerily reminiscent of Wall Street's 1929 Crash, which ushered in economic devastation in much of the known world." "So, the big question is - what does China's market crash foretell?" "China's government has sought to downplay the scale of the problem." "Officially, the economy is growing at 6.9%." "That's its slowest in 25 years, but still much faster than us in the West." "But how true is that?" "Challenging the official version is not for the faint-hearted." "Dozens of Chinese financial journalists have ended up in jail." "And it can be hard for foreign journalists to get to the places that tell the whole story." "I'm on my way to the bleak and frozen north-east, near the border with North Korea, a place seen by few foreigners." "This is the city of Yingkou." "During the boom times, it built on a mind-boggling scale." "It spent around £7 billion on urban renewal - new housing, highways, even an Olympic-themed sports centre." "All these buildings look completely deserted, goodness only knows why they built them." "I can't see a single construction worker, despite the fact I can see endless half-finished buildings." "Nothing much going on." "At all." "Nothing." "No activity." "Yingkou's new city is just one of hundreds in China lying empty." "Ghost towns." "Trillions of pounds of construction and investment kept China's economy growing, but far too much was built, and in the wrong places." "Buildings like this one will never be finished, others will never be occupied, and those who financed them will lose a fortune." "I spent an age trying to persuade anyone to discuss what's going on here." "No-one would appear on camera." "In fact, I'm seeing little evidence there's anyone here at all." "So, back to the massive hotel - where I appear to be the only guest - for something of a lonely night in." "FOGHORN BLARES" "The next day, it's off to Yingkou's port, one of China's biggest." "A huge facility for unloading raw materials, but there's almost nothing going on, because heavy industry and construction are in trouble." "The stereotypical china we recognise are huge container ports sucking in materials, spewing out exports." "But trade here and everywhere in China ain't what it was." "And here, there's a serious recession." "Now, officially, the economy in this area is growing at 3% a year - faster than Britain." "But to be frank, that's inconceivable." "Times are really hard, I mean, exports which have powered the Chinese economy for many, many years actually, are down, year over year." "The economy has been on a one-way street, really, a relentless and continuous slide in economic growth." "For the region's thousands of small private steel companies and their workers, it's agony." "Foundries in rust and ruin." "So the downturn has already had a very severe effect." "I'm in a seemingly bustling town with factories on both sides of the road, but almost all of them are deserted, closed down." "It's a bit miserable." "Another empty factory." "Absolutely nothing going on here." "Just weeds growing." "For the people, desperate times." "No work." "Ni hao, thank you so much for doing this, it's so kind of you." "'And just talking about what's going wrong 'can land you in deep trouble." "'But one brave laid-off steelworker took the risk.'" "In this area, are there a ny businesses being created at the moment?" "HE CHUCKLES" "Are you being helped at all?" "Are you getting any training?" "DOG BARKS" "Most of China's workers get no unemployment benefits, or any help finding work." "They have to scratch a living where they can." "LAUGHING:" "'Any attempt by the government to create new jobs here 'doesn't seem to be working." "'So no surprise, perhaps, that China 'doesn't publish unemployment rates for places like this." "'China's rust belt looks poisoned, ruined.'" "But there ARE businesses providing employment to millions." "Industrial goliaths owned by the government - the so-called state-owned enterprises." "They collectively employ as many people as live in Britain." "And their vast production lines made the stuff that rebuilt this country." "But many are now in deep trouble." "The term that analysts like to use is a very technical term - zombie companies, where they are not really living, thriving companies that are making money, but they're not companies that get a stake through the heart and disappear." "Despite a collapse in demand, the zombies are remorselessly producing more and more - far more than the world could ever need." "So their losses are escalating, as are colossal, potentially toxic debts." "They employ a lot of people, they have the lion's share of capital invested, and they're very inefficient, and they don't make a lot of money now, and they're a drag on the economy." "State enterprises have picked up, accumulated huge amounts of debt, and actually have to keep borrowing money now to pay interest in principle on the loans they already have." "The government talks of putting these living-dead companies out of their misery, but so far, it's mostly just talk." "Beijing is painfully aware that its state-owned manufacturers expanded too far and too fast, and that many are generating big losses, adding to the country's excessive debts." "But fixing them is politically impossible, because it would involve sacking millions of workers." "Huge loss-making zombie companies, a stock market bubble, the biggest building binge in history." "China has been on a frenetic spending spree, but it was financed with borrowed money." "So the increase in its debts has been terrifyingly big." "They've grown faster than what led to our great crash in 2008." "And still China's debt mountain is expanding... ..faster than its economy." "We have one of the biggest debt bubbles the world has ever seen." "We continue to add two-and-a-half to three trillion to that number every year." "That is weighing on growth, and until we deal with this problem, that's going to continue." "Senior Chinese officials are usually reluctant to discuss what's gone wrong." "But I had the privilege of meeting a top economic policymaker who was unusually candid." "I cannot rule out the possibility that some of the investments were not very efficient." "But overall, I would say the investments, in infrastructure particularly, in the hinterland provinces, would have been necessary." "OK." "Some of this may lay idle for a number of years, but eventually they would, er, be contributing to the local economy." "You get this massive explosion in the indebtedness of China, and that debt is still rising." "How does China manage the transition without becoming too indebted in a very dangerous way?" "HE EXHALES" "Let me put it this way." "We should focus on the way Chinese economy is moving from the older model, which has served China's needs very well over the last three decades, to a new model which would fit into the 21st century." "As ever, the Chinese government has a plan." "It's called "the great rebalancing."" "And maybe it's working here, in the booming tropical south." "I've come to Guangdong province - the richest, most populous and most entrepreneurial part of China." "The government wants Guangdong's two million private companies to lead the rebalancing by switching from cheap mass-market manufacturing to making higher-quality products and proper international brands." "China's biggest lighting company, NVC, is one of them that's taking up Beijing's challenge." "This is what it's all about - a hi-tech, advanced LED lighting production line." "In response to the slowdown, Chinese companies are doing what all good businesses do, which is to invest in better, more sophisticated products and higher-tech manufacturing." "NVC now employs 500 workers in research and development." "As it expands abroad, it'll challenge our advanced manufacturers." "Which is pretty scary news for us, although just what China needs." "But China doesn't just have to produce more upmarket stuff " "Chinese people have to spend more." "China has to shift away from its reliance on investment-led growth, and it needs to prioritise households, consumers." "To become more like us - and really love shopping." "I always find these Chinese markets somewhat bewildering - there's so much choice." "What we've got here is corn on the cob wars - they are queuing on two sides of the road to buy this particular delicacy - corn on the cob dipped in batter." "So I asked for spicy, and actually he did give that to me, even though I didn't really think he understood what I was saying." "So here it is, first mouthwatering deep-fried corn on the cob of my life." "MEN SHOUT IN BACKGROUND" "Mm." "Yummy." "So all this is supposed to refuel China's economy." "But it isn't working." "So we've got all the trappings of a consumer society, loads of young people out having fun, some of them spending." "But they're not spending enough to prevent the economy from slowing down dangerously." "I don't think China's economy would be crashing down." "It is not realistic to expect an emerging market economy to sustain its fast growth over a decade, two decades, three decades - it's not realistic." "Slowing down is inevitable, but I am sure the Chinese government is doing something proper to deal with this new pressure." "The stakes for the government couldn't be higher." "Even in rich Guangdong, factories are now closing... leaving workers out of a job and owed their salaries." "But workers aren't taking this lying down." "Over the past year, the number of strikes has doubled." "The police often get involved." "Labour activists have been arrested." "I'm meeting an activist prepared to take the risk of telling the world what's happening." "He took me on a tour of one of the more troubled factory districts." "How many factories that you've come across have gone bankrupt?" "Zhang Zhiru helps pressurise bosses to pay workers their due, through public protests and strikes." "Yet again, what's going on seems much worse than the authorities will admit." "Because the big concern for China's Communist Party is that social unrest could shake its grip on power." "To be honest, it's not something that people talk about very much, because it's so sensitive." "I don't know that the Chinese population will accept years of slow or negative GDP growth." "There has to be some sort of social and political stability consequences of that." "I personally think there is no painless exit from this problem." "If it's scary for the Chinese, what does China's slowdown mean for the world and for us here in Britain?" "You're likely looking at a prolonged slowdown in international trade, and that's especially true for a lot of the trading countries of Europe, whether it's Germany, the UK..." "And that's also going to be true of a lot of the commodity producers in Africa and places like Australia." "It's incredibly serious." "It means lower Chinese demand for all sorts of things, it also means less Chinese investment and less money flowing into the rest of the world economy, so I think it's incredibly negative, but it's going to remain a protracted process." "Shrinking global trade, slower global growth, fewer opportunities for British exporters." "And it's worse than that for the UK's most prominent industry - our banks." "'There are two huge British banks" " HSBC and Standard Chartered - 'whose fates are more closely tied 'to China than almost any other bank.'" "What is the scale of Standard Chartered's exposure, what is the scale of the lending that Standard Chartered has done in China?" "Yeah." "Well, we have a very big business in China." "Billions, tens of billions?" "Yeah, we have tens of billions so the bulk of our exposure, the bulk of our lending in China is very short-term, and it's to facilitate trade through the Chinese banks." "So if everything went very badly wrong in China, there would be losses." "Oh, of course, yeah, and we have losses today." "Where we're feeling it most acutely already is in commodity prices." "And that's a big structural shift, because of course the world built the capacity to feed the beast in terms of Chinese property expansion and machinery expansion, and that's now slowing down." "So that's already happened." "Of course, it could get worse, I mean, markets are markets." "Standard Chartered, and even bigger HSBC, say they're strong enough to weather all but the most extreme shock from China." "They have cut back lending, but still see opportunities to make profits by focusing on consumers and private businesses." "TRUMPET FANFARE AND CHEERING" "But if our banks are now a bit more cautious about China, not so the UK government." "Mr President, we have much reason to celebrate the dynamic, growing economic relationship between our countries." "The Chinese economic miracle is the story of my generation and probably my children's generation as well." "That economy's growing, it's creating jobs," "I want Britain to be part of it. and I think if we cut ourselves off from China, we're essentially cutting ourselves off from the future." "The Chancellor has hailed a new golden age for China-Britain relations." "More Chinese investment in Britain, more opportunities for British businesses in China." "The City of London is on a major drive to become the leading international centre for trading the Chinese currency and Chinese debts." "Good business, or mad, bad and dangerous to our prosperity?" "Well, perhaps both." "There will be good business for the City from opening up" "China's financial system, but deepening the UK's links to a country still undergoing the biggest borrowing binge in history is, well...risky." "Because if China becomes more connected to us before its economy stabilises, well then, its bust would be our bust." "Isn't there a risk, though, that if there is a great Chinese shock, that all we're doing is making ourselves more vulnerable to that shock?" "You know, there's no good claiming that London's going to be the centre of global finance if you're not engaged in trading with China and dealing with China's currency." "We've also got very good regulators and a tough system in the Bank of England that make sure we're constantly checking that we have got our house in order, we've got our economy secure." "The Chancellor points to Chinese promises of putting big money into Britain to show that his golden age is real." "But the closer we stand to China, the more we'll feel the shocks as good times turn bad." "I think it is a dangerous phenomenon, I mean," "I do think what is happening is that we've got a lot of governments around the world that buy into the same story that the Chinese government does, which is that they can grow out of this problem." "Well, look, China has big economic challenges, but from what" "I can see they're, A - aware of these problems, and they are throwing a lot at it." "And don't underestimate the amount of economic firepower that the Chinese authorities can throw at their problem." "Beijing engineered prosperity for its people on a scale no-one thought possible." "Can it now manage the slowdown and avoid disaster?" "China has enjoyed the longest, strongest boom of any important country in history." "But what goes up inevitably comes down." "And here's what matters to them and to us." "The sooner the day of reckoning, the sooner its debts stop increasing in a dangerous way, the less calamitous that day of reckoning will be."