Forests of newly built but nearly abandoned apartment complexes, with names such as Fortune Plaza and Golden Riverside, ring central Yuncheng while, on the outskirts of town, the district’s largest steel mill has gone bust, leaving mountains of unpaid debt and nearly 10,000 workers idle.

“I used to bring lots of investors and steel people out here to visit the plant,” says Zhang Pu, a taxi driver waiting outside an empty hotel next to the headquarters of Highsee Group, the troubled steelmaker.

“These days the only people who want to come here are local peasant farmers or debt collectors.”

China’s economy expan­ded 7.4 per cent in the first quarter of the year from the same period a year earlier, a sharp slowdown from 7.7 per cent growth in the fourth quarter of 2013. That is still an enviable rate by the standard of most countries but, in Yuncheng and other cities across China, the headline figure masks a multitude of problems.

The main reason for the slowdown is a slump in fixed asset investment, the biggest driver of the Chinese economy. In the first three months of the year, investment grew 17.6 per cent from the same period a year earlier, the slowest pace since late 2002.

The slide was largely caused by slowing real estate investment, which also experienced its weakest growth in more than a decade. The situation is certain to get worse in the coming months, as new housing floor space under construction contracted 27.2 per cent in the first quarter.

That was largely a reaction to declining sales, which fell 5.7 per cent in terms of floor space in the first quarter from a year earlier, with the fall pronounced in smaller inland cities such as Yuncheng.

“Our surveys show clear divergence in price trends with first-tier major cities experiencing mildly rising housing prices,” Sheng Laiyun, spokesman for China’s National Bureau of Statistics, said yesterday while announcing first-quarter gross domestic product data. “In some second-tier cities prices are shaky and in third and fourth-tier cities, especially those with ample supply, prices have come down.” The fate of China’s overheated real estate market is absolutely critical to the health of the overall economy. Real estate construction directly accounted for 16 per cent of GDP in 2013, according to estimates from Nomura. At that level China is approaching a dependence on real estate last seen in Ireland and Spain before the bursting of their real estate bubbles.

Many of the industries suffering from severe overcapacity in China, such as steel, cement and glass, are heavily indebted and reliant on continued rapid growth in property construction for their survival.

Land sales and property-related taxes accounted for 38 per cent of total government revenue in 2013 and heavily indebted local governments have used highly priced land as collateral for the majority of their loans.

A property crash would not only lead to collapsing growth in the world’s second-largest economy and largest commodity consumer but would also have a huge impact on households, which have an estimated two-thirds of their assets tied up in real estate.

In numerous places such as Yuncheng, the crash has already begun.

Mr Guo said that in the district where the Highsee steel mill has gone out of business, the local government approved 800,000 square metres of new construction last year, even though the district’s total population is only 300,000.

As night falls in Yuncheng, the dilemma facing the government is dramatically illustrated by the very few lights blinking on in newly constructed apartment towers.

In the past, Beijing has turned to credit-fuelled prop­erty construction as the easiest way to boost flagging growth. But with so many freshly built apartment towers already standing empty, another round of state-sanctioned building would amount to yin zhen zhi ke – “drinking poison to quench one’s thirst”.