Success stories often have a darker side and, in the case of China’s growth miracle, this lies in the size of the debt burden of its municipalities. Official estimates, which are disputed, show this figure to have trebled since 2007. In 2010, it reached Rmb14,000bn ($2,194bn), or 35 per cent of the country’s gross domestic product.

One reason the estimates are so uncertain is that local authorities were never supposed to borrow in the first place. In spite of an official ban, however, Beijing tacitly allowed them to borrow money from banks by setting up so-called local government financing vehicles. Much of this debt is poorly collateralised, some of it backed by land whose high value risks plummeting in the event of a slowdown. Other loans have been invested in unproductive assets, which are unlikely to generate sufficient revenue to repay them.

In order to deal with this problem, Beijing is proposing to allow a limited number of local authorities to issue bonds directly for the first time since 1994. This is a significant development and a welcome one. It should oblige local governments to be more transparent about their finances. Hopefully, this will in turn lead to a more disciplined approach to borrowing money. Greater disclosure will allow investors to differentiate between those municipalities which run a tight ship and those that are profligate. This should encourage them to cut borrowings and make better use of the funds which they receive.