'China's Manhattan' borrows heavily, but the people have yet to arrive

Tianjin

AT a port in Germany, 150 Steinway pianos are waiting to be shipped to this gateway city for the grand opening of the Juilliard School's second campus.

The air in Tianjin is so dry that the pianos will require climate-controlled rooms, helping to nearly double the cost of the state-of-the-art campus to US$225 million.

The extra money is not coming from Juilliard. The local government is footing the bill. And that could become a problem for officials struggling with debt after an epic spending spree to develop a new commercial centre from scratch.

Welcome to Yujiapu Financial District, which promotes itself as China's Manhattan, but may better be seen as a monument to the breakdown of the Chinese growth model.

Four-fifths of the office space stands empty. Construction on other buildings has stopped, leaving skeletons in the sky. A sprawling mall has few shoppers. Inside, a pet store has no animals.

The businesses and residents that local officials had hoped to attract have yet to show up. Juilliard, which is expected to draw students and their families, will open its doors next fall, the rare Western institution taking a chance on this district.

Zhang Zhiyi works as a recruiter for an online education company in a nearby office building.

The lonely landscape has translated into a good deal for commercial renters - new tenants get a full year rent-free. Deals abound, the 28-year-old said, adding that the other buildings are not really full either.

Chinese local governments are swimming in debt. By official accounts, that debt totals US$4.5 trillion. By unofficial estimates, it could be as large as US$10 trillion. No one knows for sure because much of the borrowing for projects like the Tianjin Juilliard campus is rarely disclosed.

China has long borrowed heavily to build and then counted on breakneck economic growth to pay it back. The script: Sell vast amounts of land to developers, borrow to subsidise construction, and jobs and new cities will result.

It was a model that helped China build its skyscrapers and high-speed rail lines and ushered in an era of prosperity.

But China is not growing as fast as it used to, and it is not clear that the "build it and they will come" model will save Yujiapu and other places with big debts. The central government now must find other ways to spur growth without making the debt problem worse.

"China's economy has depended on building for the future, and there are considerable signs that they have overbuilt," said Logan Wright, director of China research at Rhodium Group, a consulting firm, adding that debt and overcapacity could hold back growth.

"That probably means much slower economic growth in the next decade compared to China's recent path," he said.

Tianjin, a coastal city just a short train ride from Beijing, had one of the highest growth rates in China. Its success made headlines, and local officials credited "Tianjin spirit, Tianjin speed and Tianjin benefits".

Then the economy slowed. And local officials in the Binhai New Area, a special economic zone of Tianjin that includes Yujiapu, admitted they overstated growth.

They slashed US$50 billion from its original figure for 2016, bringing economic output to US$100 billion. Today, Tianjin is one of the slowest-growing regions of China and one of the most financially troubled.

By the broadest measure of borrowing in China, called total social financing, Tianjin's government, corporations and households owe more than US$760 billion, according to an estimate by Rhodium Group. The annual interest owed by all borrowers in Tianjin totalled 12 times its annual nominal economic growth, Rhodium said, citing the most recent numbers.

If Yujiapu really is the Manhattan of China, it has some way to go in catching up with its namesake. Its avenues, some nearly as wide as Broadway, are eerily quiet. NYTIMES