Trouble in paradise.

• Position: Off the News

"As municipal projects play out across China, spending on so-called fixed-asset investment--a crucial measure of building that is heavily weighted toward government and real estate projects--is now equal to nearly 70 percent of the nation's gross domestic product. It is a ratio that no other large nation has approached in modern times.

"Even Japan, at the peak of its building boom in the 1980s, reached only about 35 percent, and the figure has hovered around 20 percent for decades in the United States....

"By Beijing's estimate, total local government debt amounted to $2.2 trillion last year--a staggering figure, equal to one-third of the nation's gross domestic product. A wave of municipal defaults could become a huge liability for the...