Will China shake the world again?
Unless you are an aficionado of the great moments of Chinese Communist history, you probably won't have heard of Wuhan (it is the site of Chairman Mao's legendary swim across the Yangtze).
But perhaps more than any other Chinese city, it tells the story of how China's remarkable three decades of modernisation and enrichment, its economic miracle, is apparently drawing to a close, and why there is a serious risk of a calamitous crash.
In Wuhan I interviewed a mayor, Tang Liangzhi, whose funds and power would make London's mayor, Boris Johnson, feel sick with envy. He is spending £200bn over five years on a redevelopment plan whose aim is to make Wuhan - which already has a population of 10 million - into a world mega city and a serious challenger to Shanghai as China's second city.
The rate of infrastructure spending in Wuhan alone is comparable to the UK's entire expenditure on renewing and improving the fabric of the country. In this single city, hundreds of apartment blocks, ring roads, bridges, railways, a complete subway system and a second international airport are all being constructed.
The middle of town is being demolished to create a high tech commercial centre. It will include a £3bn skyscraper that will be more than 600m high (roughly double the height of London's Shard) and either the second or third tallest in the world (I met executives of the state owned developers, Greenland, who were coy about precisely how tall it would finally be).
And, of course, the point of my visit to Wuhan was to tell a broader story. Over the past few years, China has built a new skyscraper every five days, more than 30 airports, metros in 25 cities, the three longest bridges in the world, more than 6,000 miles of high speed railway lines, 26,000 miles of motorway, and both commercial and residential property developments on a mind-boggling scale.Third wave
Now there are two ways of looking at a remaking of the landscape that would have daunted Egypt's pharaohs and the Romans. It is, of course, a necessary modernisation of a rapidly urbanising country. But it is also symptomatic of an unbalanced economy whose recent sources of growth are not sustainable.
When a big economy is investing at that pace to generate wealth and jobs, it is a racing certainty that much of it will never generate an economic return”
Perhaps the big point of the film I have made, to be screened on Tuesday (How China Fooled the World, BBC2, 9pm) is that the economic slowdown evident in China, coupled with recent manifestations of tension in its financial markets, can be seen as the third wave of the global financial crisis which began in 2007-08 (the first wave was the Wall Street and City debacle of 2007-08; the second was the eurozone crisis).
Why do I say that?
Well in the autumn of 2008, after the collapse of Lehman, there was a sudden and dramatic shrinkage of world trade. And that was catastrophic for China, whose growth was largely generated by exporting to the rich West all that stuff we craved. When our economies went bust, we stopped buying - and almost overnight, factories turned off the power, all over China.
I visited China at the time and witnessed mobs of poor migrant workers packing all their possessions, including infants, on their backs and heading back to their villages. It was alarming for the government, and threatened to smash the implicit contract between the ruling Communist Party and Chinese people - namely, that they give up their democratic rights in order to become richer.
So with encouragement from the US government (we interviewed the then US Treasury Secretary, Hank Paulson), the Chinese government unleashed a stimulus programme of mammoth scale: £400bn of direct government spending, and an instruction to the state-owned banks to "open their wallets" and lend as if there were no tomorrow.
Which, in one sense, worked. While the economies of much of the rich West and Japan stagnated, boom times returned to China - growth accelerated back to the remarkable 10% annual rate that the country had enjoyed for 30 years.
But the sources of growth changed in an important way, and would always have a limited life.Toxic investment
There are two ways of seeing this.
First, even before the great stimulus, China was investing at a faster rate than almost any big country in history.
Anyone living in the rich West does not need a lecture on the perils of a financial system that creates too much credit too quickly”
Before the crash, investment was the equivalent of about 40% of GDP, around three times the rate in most developed countries and significantly greater even than what Japan invested during its development phase - which preceded its bust of the early 1990s.
After the crash, thanks to the stimulus and the unleashing of all that construction, investment surged to an unprecedented 50% of GDP, where it has more or less stayed.
Here is the thing: when a big economy is investing at that pace to generate wealth and jobs, it is a racing certainty that much of it will never generate an economic return, that the investment is way beyond what rational decision-making would have produced.
That is why in China, there are vast residential developments and even a whole city where the lights are never on and why there are gleaming motorways barely tickled by traffic.
But what makes much of the spending and investment toxic is the way it was financed: there has been an explosion of lending. China's debts as a share of GDP have been rising at a very rapid rate of around 15% of GDP, or national output, annually and have increased since 2008 from around 125% of GDP to 200%.
The analyst Charlene Chu, late of Fitch, gave a resonant synoptic description of this credit binge:
Find out more
BBC business editor Robert Peston travels to China to investigate how this mighty economic giant could actually be in serious trouble.
Watch This World: How China Fooled the World - with Robert Peston on BBC Two at 21:00 on Tuesday, 18 February.
Or catch it later on the BBC iPlayer.
"Most people are aware we've had a credit boom in China but they don't know the scale. At the beginning of all of this in 2008, the Chinese banking sector was roughly $10 trillion in size. Right now it's in the order of $24 to $25 trillion.
"That incremental increase of $14 to $15 trillion is the equivalent of the entire size of the US commercial banking sector, which took more than a century to build. So that means China will have replicated the entire US system in the span of half a decade."
Anyone living in the rich West does not need a lecture on the perils of a financial system that creates too much credit too quickly. And in China's case, as was dangerously true in ours, a good deal of the debt is hidden, in specially created, opaque and largely financial institutions which we've come to call "shadow" banks.
There are no exceptions to the lessons of financial history: lending at that rate leads to debtors unable to meet their obligations, and to large losses for creditors; the question is not whether this will happen but when, and on what scale.
Which is why we've seen a couple of episodes of stress and tension in China's banking markets over the past nine months, as a possible augury of worse to come.Slowing growth
More broadly, for the economy as a whole, when growth is generated over a longish period by debt-fuelled investment or spending, there can be one of two outcomes.
If the boom is deflated early enough and in a controlled way, and measures are taken to reconstruct the economy so that growth can be generated in a sustainable way, the consequence would be an economic slowdown, but disaster would be averted.
But if lending continues at breakneck pace, then a crash becomes inevitable.
So what will happen to China's economic miracle?
Well, the Chinese government has announced economic reforms, which - in theory - would over a period of years rebalance the economy away from debt-fuelled investment towards consumption by Chinese people.
Charles Liu, a prominent Chinese investor, with close links to the government in Beijing, explained to me how far China's growth rate is likely to fall from the current 7-8%:
"I think China could do very well if the quality of the growth is transformed to higher value add." He said. "You're really looking at 4% is fine."
But as yet the reforms are at a very early stage of implementation, and the lending boom goes on. What is more, the current building splurge so enriches many thousands of communist officials, from a system of institutionalised kickbacks, that there are concerns about the ability of the central government to force the changes through.
Also, the social and political consequences of Charles Liu's 4% growth could be profound: it is unclear whether that is a fast enough rate to satisfy the people's hunger for jobs and higher living standards, whether it is fast enough to prevent widespread protest and unrest.
And what if the lending and investing bonanza can't be staunched? Then we would be looking at the kind of crash that would shake not just China, but the globe.
The biggest story of my career has been the rise and rise of China. Hungry, fast-growing China has shaped our lives, sometimes but not always to our benefit.
It boosted our living standards, by selling us all those material things we simply had to have, cheaper and cheaper. But its exporters killed many of our manufacturers. And the financial surpluses it generated translated into our dangerous deficits, the secular and risky rise of indebtedness in much of the West.
Also its appetite has led to huge increases in the price we all pay for food, for energy, for commodities. What's more, China's influence in Asia and Africa has profoundly shifted the global balance of power.
So would an economically weakened China be good for us in the West? Well, it wouldn't necessarily be all bad.
But a China suddenly incapable of providing the rising living standards its people now see as their destiny would be less confident, less stable, and - perhaps for the world - more dangerous.
Watch This World: How China Fooled the World - with Robert Peston on BBC Two at 21:00 on Tuesday, 18 February. Or catch it later on the BBC iPlayer.