9:00 p.m., Thursday, 7 August 1975. Southern Henan.
It has been raining, on and off, for three days. Typhoon No. 7503 struck the province at 2:00 on the afternoon of 5 August. The first downpour lasted ten hours and dropped 448.1 millimetres, about forty percent more than the heaviest rain on record. A second began at noon on the 6th and lasted sixteen hours. A third began at 4:00 this afternoon.
By 9:00 tonight seven of the smaller dams have given way. An hour from now the medium-sized Zhugou Dam will follow. Before the night is out the count of failed dams in Henan will reach as many as sixty-two, and the reservoirs behind Banqiao and Shimantan will go with them. About 600 million cubic metres of water will come out of Banqiao alone. The Banqiao dam is a clay dam begun in 1951, and a visitor’s report says it was known as the “iron dam” because it was thought unbreakable.
The toll is disputed. The government’s internal figure is 86,000 dead from flood, famine and epidemic. A group of eight senior Chinese critics of the Three Gorges project puts it at 230,000. Human Rights Watch, which reports both figures, calls the collapses man-made disasters that came out of flawed water-control policies.
The warning had been given seventeen years earlier. Chen Xing, the engineer who designed the Suya Lake reservoir, had argued that the policy of “taking water storage as the key link” neglected drainage and flood diversion. An official cut his plan’s sluice gates from twelve to five in 1958, and Chen was denounced as a “right-wing opportunist element” and purged. On 12 August, five days after the dams broke, he is back, on a helicopter flight over the ruined country with Vice-Premier Ji Dengkui. He tells the leaders that the only option left is to dynamite several of the big surviving dams. Two days later, under his direction, they are blown up. He is the fourth of the book’s warners, and the earliest.
Months afterwards the Minister of Water Resources, Qian Zhengying, tells a conference in Zhengzhou that she must personally shoulder the principal responsibility.
The book borrows one image from that night and claims nothing more from it. A system built to hold water back, with too little provision for the water that must go somewhere else, does not fail gently. Whatever is stored will find the way down.
The rest of this chapter is about that second half of the sentence. China’s problem, on the reading this chapter tests, is a stock of capacity, savings and debt that its own households do not take up. China’s commerce ministry disputes that reading, as the chain break shows. Its neighbours receive the overflow. India is the largest neighbour that is still trying to climb.
Start with the dial that sets the pressure. In 2005 China’s households spent 39.8 percent of GDP, and its gross capital formation was 40.2 percent. By 2007 household consumption was down to 36.6 percent. By 2010 it was 34.6 percent, and gross capital formation was 46.1 percent. The government’s answer to the global crisis in the interval was 4 trillion yuan of investment announced on 9 November 2008, directed at projects rather than at household incomes.
The shift was already under way before that announcement, which matters for the argument below. It is also easy to overread. A capital share near 46 percent describes a country building a great deal. It does not say how much of what was built was needed. That question belongs to the next decade, and the next decade is where the property market comes in.
The market that stopped buying
Property is the cleanest case, because the slowdown is the best documented. China’s biggest developer, Evergrande, had been under a Hong Kong winding-up petition since June 2022. On 29 January 2024 a Hong Kong court ordered it liquidated, with about $300 billion of liabilities. In mid-2022, buyers of flats sold before they were built had begun to stop paying mortgages on stalled projects, and Evergrande had missed its own 31 July deadline for a restructuring plan.
On 8 November 2024 the National People’s Congress Standing Committee approved a 6-trillion-yuan increase in the local-government special-bond ceiling to replace hidden debt, spread over 2024 to 2026, plus the freedom to use another 4 trillion yuan of special bonds over five years for debt swaps. The finance minister said hidden debt would fall from 14.3 trillion yuan at the end of 2023 to 2.3 trillion by 2028.
The story has reached its legal end. On 20 August 2026 the Shenzhen Intermediate People’s Court sentenced Evergrande’s founder, Xu Jiayin, to life in prison on charges that included fundraising fraud and fraudulent issuance of securities, and confiscated his personal assets.
2026Property is still shrinking. National statistics for January to August 2026 showed fixed-asset investment down 7.2 percent, and property investment down 19.9 percent. A Stanford finance professor, Zhiguo He, told Al Jazeera after the third-quarter GDP release that real estate was still contracting: “This is what Beijing wanted and a good thing.”
Beijing’s remedies, among them the debt swap above, had not turned the market round by the autumn of 2026.
That is the shape of the house. A country that for twenty years put its savings into buildings has been told by its own government to stop. The workers and materials those buildings used must find another customer. Some of the answer has been exports.
The water measured
China ran a record trade surplus of $1.189 trillion in 2025, and passed the trillion-dollar mark for the first time in November. Its steel exports reached a record 119.02 million tonnes, up 7.5 percent, while its imports of steel fell 11.1 percent. Auto exports rose 19.4 percent to 5.79 million vehicles. Exports to the United States fell 20 percent that year, while exports to Africa rose 25.8 percent and to Southeast Asia’s ASEAN group 13.4 percent. The other side of the ledger is at home. Nine-month figures to September 2026 showed retail sales up only 2.6 percent and industrial production up 5.3 percent. The goods did not stop. They changed address.
7.92M
births in 2025
about as many as in 1738
≈ 40 vs 29
median age
China vs India
−3.39M
people in 2025
the fourth fall in a row
What the house on the hill sends down
China's surplus — more factories than its own people can buy from — has to be sold abroad, and it lands hardest on the countries still climbing.
Source: NBS China; UN World Population Prospects; Reuters
See the numbers
| Measure | Value |
|---|---|
| Births, 2025 | 7.92 million (about as many as in 1738) |
| Change in population, 2025 | −3.39 million (the fourth fall in a row) |
| Median age, China vs India | about 40 vs 29 |
The quarrel at home had already started. On 1 July 2025 the Central Commission for Financial and Economic Affairs pledged to tackle “disorderly low-price competition”, which the press calls involution, and to help outdated capacity exit. Regulators acted on electric vehicles and food-delivery platforms, and many automakers promised to pay suppliers within 60 days. It was not the first such pledge. The 2016 Government Work Report had already called overcapacity a serious problem and said more than 90 million tonnes of iron and steel capacity had been cut in three years.
The cost of the price war shows even in the champions. BYD, which had overtaken Tesla in battery-electric sales in the last quarter of 2023, reported that its 2025 net profit fell about 19 percent, to roughly 32.6 billion yuan from 40.3 billion, even though it sold more cars. A company can win share and lose money in the same year, and a country can do the same.
The same mismatch shows up in the supply of solar modules. The International Energy Agency reported in October 2025 that in China solar prices were down over 60 percent since 2023 because of a glut of modules, and that the biggest manufacturers’ margins had fallen to minus 10 percent, with cumulative losses of almost $5 billion since the start of 2024. A buyer of modules gains from that. A maker of modules does not.
China’s households are part of this story, because they are where the demand would have to come from. A Stetson told of the 7.92 million births of 2025 and the 3,600-yuan subsidy. The point here is the buyer: a country with fewer young households (fertility 1.00 in 2023) cannot absorb what its factories were built to make.
Door D6 · openedA levee on the Indian side
Water meets a bank somewhere. In India, the bank that took the first hit was steel.
India’s trade-remedies directorate found that imports of flat steel had nearly tripled, from 2.3 million tonnes in 2021–22 to 6.6 million in the year to September 2024. In April 2025 New Delhi imposed a provisional safeguard duty of 12 percent, and at the end of the year it fixed a three-year duty beginning 21 April 2025: 12 percent to April 2026, 11.5 percent to April 2027 and 11 percent to April 2028.
The levee has a cost, and the people who pay it are not the people who asked for it. The Indian Steel Association welcomed the directorate’s recommendation. The Global Trade Research Initiative warned that it would “cripple” the auto, engineering and construction sectors, and said that more than 250 stakeholders, among them Tata Motors, Maruti Suzuki, Hyundai, Toyota Kirloskar, LG, Samsung, Whirlpool, Siemens and L&T, argued that it would raise input costs, hurt export competitiveness and make customer-specific grades hard to source. This is the reserved list’s trade-off in a new place. A Staircase told the story of the reserved list, and A Special Train its toy step. A duty protects the people who make a thing and taxes everyone who uses it.
2026The pressure has not eased. China’s exports rose sharply in September 2026. China’s commerce ministry, for its part, says the premise is wrong. Its spokesperson told reporters in October 2026 that the ministry opposes trade protectionism in the name of “overcapacity”, after the United States convened 14 other economies behind a ministerial statement on the subject.
India is not the only bank. In 2024 the United States quadrupled its tariffs on Chinese electric vehicles to 100 percent, Canada followed with the same rate and 25 percent on steel and aluminium, and the European Union set extra duties of up to 36.3 percent on Chinese-made EVs. The EU’s definitive duties from October 2024 were 17.0 percent on BYD, 18.8 percent on Geely and 35.3 percent on SAIC. Each levee raised elsewhere sends more of the water towards the banks that have none. Al Jazeera reported the Kiel Institute’s estimate of at least $3.7 billion in subsidies to BYD, and a price gap that shows why: a BYD Dolphin Mini cost 69,800 yuan (about $9,640) in China and about $21,000 in Mexico.
India has begun to reconsider its own gate. In April 2026 the Lowy Institute reported that “Press Note 2” of 2026 allows non-controlling Chinese stakes of up to 10 percent without prior approval and a 60-day fast track for investment in priority manufacturing such as electronics, capital goods and solar cells, and it called the change a cautious volte-face. Whether a country is better served by shutting out the water or by learning to build on it is the question the Indian side of this chapter cannot yet answer.
A Staircase opened with a film about a staircase, Parasite. In its last act the rain that clears the air for one house floods another.
The shrinking step
The deeper danger is not one tariff line. It is the width of the step India is trying to climb. Dani Rodrik’s term for it is premature deindustrialisation: countries are running out of industrialisation opportunities sooner and at much lower levels of income than the early industrialisers did. He puts the cause on globalisation and labour-saving technology.
On Rodrik’s reading, the step is shorter.
2028The levee has a date on it. The three-year safeguard duty runs out in April 2028. A government that renews it will protect the steelmaker and tax the carmaker. A government that lets it lapse will do the opposite. Neither choice ends the flood.
The water has a second current. When the giant’s own access to its largest market wobbled in 2025, orders ran downhill too, towards whoever was ready to take them.