China’s main export markets are slowing. The country’s manufacturers have seen their order books starting to shrink. Things have not seemed this dire since late 2008. Don’t fear, say the ebullient crowd of China-watchers. Beijing is prepared for the worst. After all, its last stimulus programme – launched almost exactly three years ago – helped pull the global economy out of recession. The legacy of China’s recent credit boom, however, will make it difficult for Beijing to repeat its past success.

Anyone who follows Chinese affairs will be aware of the extraordinary expansion of credit in recent years. Since 2008, the stock of private credit (or “social finance”) has grown from 120 per cent to nearly 180 per cent of GDP. The recent rate of credit growth in China has exceeded that of the US in the years prior to the Lehman bust. A mere slowdown in the flow of new credit, could have a serious impact on China’s economy.

This great lending spree has supported ever increasing amounts of Chinese fixed asset investment. There are signs that capital has been misallocated on a spectacular scale. For example, China will soon possess more miles of high speed railway than the rest of the world combined. Yet the rapid build-out of the rail network has been accompanied by reports of shoddy construction. The economics of this expensive transport system have also been questioned. A fatal collision of two trains near Wenzhou in July led to mass protests against China’s “blood-stained GDP growth”.