List of non-performing assets lengthens as edifice complex builds up

Earlier this month, the foreign ministers and central bankers of the world's 20 largest economies were obliged to descend on the nondescript town of Xianghe, located just outside Beijing, for the annual G20 meeting.

The venue was the Grand Epoch City, a tacky replica of the original Summer Palace, which was burned to the ground by French and British troops in 1860.

The project cost three billion yuan to build and is an ironic testament to one of the main discussion topics at the conference - China's inefficient allocation of capital.

According to staff at the complex, the only time they have any guests is when the government compels foreign dignitaries or state-owned enterprises to hold a conference there. The venture is a giant non-performing loan in the making and a salutary reminder of the extremely high proportion of fixed-asset investment in China's GDP.

According to the latest official statistics, investment in fixed assets such as factories, roads - and replicas of the old Summer Palace - made up 54.8 per cent of gross domestic product in the first three quarters. Using comparable calculations, most Organisation for Economic Co-operation and Development countries and emerging markets have fixed-asset investment of less than 30 per cent of GDP. The question in China is where demand is going to come from to provide returns on all that investment.

The Xianghe project was funded by cheap loans from state-owned banks awash with money, in part thanks to China's famously high savings rate which is about 44 per cent, according to Asian Development Bank economist Zhuang Jian. By comparison the US savings rate is 18.2 per cent, Japan's is 23.9 per cent and the world average is 19.9 per cent.

For years now, the Chinese government has been saying the masses must save less and spend more if the economy is to continue its rapid growth in a sustainable and healthy way.