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Tao might seem like a killjoy. After all, China at the moment is the star on the world economic stage. The country's soaring need for a host of goods, especially commodities such as oil, iron ore and aluminum, is a major contributor to global economic recovery. China is poised this year to pass Japan as the world's third largest importer. But the government needs to keep the economy superheated just to provide jobs for the 12 million to 15 million people coming into its labor market every year. That means finding ever larger markets--both internal and overseas--to soak up all the goods the country is producing. The U.S. already has a massive $120 billion trade deficit with China, which has prompted some members of Congress to call for punitive tariffs. Other countries are equally fearful of a deluge of cheap goods from China.
Those closest to the gears of the global economy were the first to notice the coming storm in China. Albert Stahl, a London ship broker, watched the spot-market price for cargo-vessel leases rise last winter to $22,000 a day for a ship big enough to transport iron ore. He assumed the spike was due to the impending Iraq war. But through the summer the price kept increasing; shipowners even stopped giving quotes in expectation that prices would jump again the following day. Then Stahl began hearing reports of vessels the size of three football fields anchored off the Chinese coast for up to two weeks waiting for a berth, sometimes paying $100,000 a day for the privilege. Finally, he pieced it together. "There's a shortage of available ships in the world because of congestion in China, and nobody knows how to deal with it," says Stahl, a director at CTI Transport and Logistics.
There are other signs that China's economy is overheating. Chinese state-run banks, already technically insolvent, have in the past year been shooting out new loans for factories, roads and real estate as if from confetti cannons. According to China's central-bank numbers, lenders last year handed out about $335 billion, 50% more than the year before. It's just not possible that China's banks suddenly found so many new creditworthy ventures, says Nicholas Lardy of the Washington-based Institute for International Economics. "We've seen the greatest credit expansion in the past 25 years," he says. "I'd expect companies that borrowed heavily to face difficulties when the next downturn starts."