As the U.S. and Europe have struggled with debt, China has seemed to be largely immune. This fall, the European Union even asked China for financial help, but China has a debt problem of its own.
Over the past several years, local governments have run up at least $1.5 trillion in bank loans for infrastructure projects intended to prop up the nation's economic growth. Analysts think much of that money will never be repaid.
The government has become so concerned about deepening debt that it has ordered banks to cut off loans to certain local projects, including a highway that is supposed to stretch more than 60 miles in western China's Shaanxi province.
A short drive from the city of Yan'an, a 100-yard elevated section of that highway stands dormant with nothing on either side.
"From April until now, the subcontractors on this road haven't been paid any money," says Cui Jinmin, who ran a crew of about 15 workers here. "There's nothing we can do. The road's owner [the local government] has no money; we can only wait."
Cui lives in a shack with his wife, Li Na, in a muddy work camp on the edge of the orphaned stretch of highway. He says the government stopped paying his crew back in April and his workers finally gave up and left in July.
"Right now, they owe our team at least $300,000," says Cui, who watches over the heavy machinery and rusting construction materials. "Almost the entire project is halted. We've worked for so many years, this is the worst project we've ever worked on."
In fact, one worker at another section of highway became so desperate for his wages, he climbed up on a bridge pillar and threatened to jump, according to a local newspaper.
Officials here refused to discuss the project, which is supposed to connect Yan'an, the cradle of China's Communist revolution, with Wuqi, a Shaanxi county.
China's Stimulus Plan
The highway is part of a massive stimulus program China's government launched in 2008 to cushion the economy from the effects of the global financial crisis. The strategy worked, but many local governments racked up huge debts along the way.
Local governments in western China's Gansu province owe $22 billion, or 1 1/2 times their annual revenue, according to a provincial report.
Next door in Inner Mongolia, the tab is $44 billion — or about 90 percent of local revenue.
How many projects have crashed like the highway in Shaanxi is unclear.
"We don't really know, which is the scary thing," says Stephen Green, who heads research on Greater China at Standard Chartered Bank in Hong Kong.
Green says most projects won't be able to pay for themselves. Most highways just don't earn enough money in tolls.
Roads aren't the only problem. China's high-speed rail system has run up more than $300 billion of debt, according to China's Rail Ministry.
"The banks have stopped lending money — more or less — to the Ministry of Railways," says Green, "which means hundreds of projects around the country for high-speed rail have been slowed down or stopped."
Growing Economy Provides Cushion
If it sounds like this is all leading to a U.S. or even Greek-style debt crisis, Green says China has some big advantages. Debt makes up a smaller share of China's economy than it does in America or Greece.
Although China's economy is slowing, it is still growing faster than most. Green says China's central government will eventually have to take over many bad loans but probably has the wherewithal to avoid a banking crisis.
"Ultimately, you're going to have to go down the bailout route," he says.
Charlene Chu, who monitors Chinese banks for Fitch Ratings in Beijing, agrees. But she also sees another, potentially bigger problem ahead: real estate.
The government has put restrictions on real estate transactions to cool China's blazing property market, and sales are now falling. Earlier this week, China Vanke, one of the country's biggest real estate developers, said November sales were down by more than a third from the same time last year.
Businesses and local governments have invested heavily in China's real estate boom and are perceived to be vulnerable if prices tumble. Chu is watching to see how many won't be able to make loan payments in the coming months.
"Real estate would be extremely difficult to deal with, because that is penetrating every aspect of the economy," she says.
Back in the wilds of Shaanxi province, Cui sits and waits.
His wife passes the time doing needlepoint amid the orange glow of a space heater. Cui watches at least seven to eight hours of TV a day.
Cui says it's a miserable way to live and one he can't wait to change.
But he has no idea when construction on the highway might begin again or whether his crew will ever return.
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