Will China's economy 'collapse' again?

Despite speculations about the decline of China’s economy, Chinese academic Han Heyuan says that history has shown that such contrarian sentiments have been proven wrong time and again, for example in the case of the US, Japan and even China during the turn of the century.
Passengers wait for trains at Hongqiao Railway Station in Shanghai on 29 September 2023. (Rebecca Bailey/AFP)
Passengers wait for trains at Hongqiao Railway Station in Shanghai on 29 September 2023. (Rebecca Bailey/AFP)

China’s Ministry of State Security recently topped the list for searches related to the country’s finance sector. It all started when the ministry published “National Security Mechanisms are Firm Guardians of Financial Safety” (《国家安全机关做金融安全的坚定守护者!》) on its official Wechat account on 2 November. 

The article called for clear-headedness in facing the many risks and challenges in financial security — in addition to a host of inconsistencies and issues that are interconnected and impact one another in the financial sector, there are also more hidden economic and financial risks. It warned that some countries are prone to using finance as a tool for geopolitical competition, repeatedly manipulating monetary hegemony and haphazardly swinging the big stick of “economic sanctions”. 

The article further warned of those with ulterior motives, seeking to stir the pot, and those who engage in profiteering and spread bearish sentiment. It also strictly warned against malicious short selling of the financial market.

... the financial market safety has been elevated to the level of national security...

Wave of naysayers

Evidently, the financial market safety has been elevated to the level of national security, as it is rare that even bearish speculators and critics are being warned against.

I am curious — can a country’s or a region’s economy really be dragged down by mudslinging? I have always been sceptical of this.

Looking back on the 2000s, the world at large — especially the US and other Western nations — was not optimistic about China, who’s entry into the World Trade Organization (WTO) was accompanied by a wave of the “China collapse theory”. 

UK publication The Economist was most representative of this. It carried an article titled “Will China be Next?” on its cover 25 years ago on 24 October 1998 — coinciding with the 1997-1998 Asian Financial Crisis. It touched on whether “China’s growth is slowing or even grinding to a halt; whether the resulting unemployment will prompt political unrest, or a power struggle among the leadership…” It concluded that “The right bets, on current evidence? Yes, [and] yes…”

Women dressed in traditional costumes march through a street during an event to promote exercising among the elderly, in the old town of Dali, Yunnan province, China, 11 November 2023. (Florence Lo/Reuters)
Women dressed in traditional costumes march through a street during an event to promote exercising among the elderly, in the old town of Dali, Yunnan province, China, on 11 November 2023. (Florence Lo/Reuters)

Four years later on 15 June 2002, the Economist carried a special report titled “A Dragon Out of Puff”. It stated, “But given [China’s] size, the economy still relies primarily on domestic engines of growth, which are sputtering. Growth over the past five years has relied heavily on massive government spending. As a result, the government’s debt is rising fast.”

It added, “Coupled with the banks’ bad loans and the state’s huge pension liabilities, this is a financial crisis in the making… In the coming decade, therefore, China seems set to become more unstable. It will face growing unrest as unemployment mounts. And if growth were to slow significantly, public confidence could collapse, triggering a run on banks that would undermine China’s financial stability.”

Economic prosperity a mirage

American Chinese academic Gordon Chang, whose father is from Jiangsu, China, concurred with the article. Chang was born in the US in 1951, and holds a doctoral degree in law from Cornell. He became a lawyer at an international law firm after graduating from college. Following China’s reform and opening up, Chang was sent to Asia for work; first to Hong Kong, then to Shanghai where he worked for several years, with his main clients being the US’s Citibank and France’s Crédit Agricole. 

Given his experience in mergers and acquisitions, and joint ventures between China and other countries, Chang was exposed to the economic developments and societal changes in China. 

His articles on China’s economic problems were carried by the New York Times, Wall Street Journal Asia, Washington Post and others, and he also gave briefings on China’s economy for the US Congress and think tanks. Chang began penning a book introducing China during his time in Shanghai, and returned to the US with his wife when the draft was completed. The Coming Collapse of China was published in July 2001.

Not only did the Chinese economy not collapse as a result of their mudslinging, it grew tremendously.

An angler fishes in the Liangma river in Beijing on 13 November 2023. (Pedro Pardo/AFP)
An angler fishes in the Liangma river in Beijing on 13 November 2023. (Pedro Pardo/AFP)

In the book, he claimed that China’s economic, societal and political ailments accumulated over the past 50 years have been too many and too severe, and that the current economic prosperity was but a mirage. He added that the impact from joining the WTO would cause China to collapse in a short period of time. 

Chang even predicted that China’s current political and economic system was viable for a maximum of five years, and that China’s economy was facing a downturn and would begin to collapse. He said that this would happen before, and not after, the 2008 Beijing Olympics. 

Chang’s “China collapse theory” caused quite a stir in the US, and the book became a New York Times bestseller. The US Congress even invited Chang to a hearing. The book was subsequently translated into Japanese, French, German and other languages, and was released in several countries. Many Western media outlets and universities invited Chang for interviews and to give talks. He became an overnight sensation. 

After The Coming Collapse of China, Chang also published a series of commentaries such as “Asia’s Argentina?”, “Impact From Joining WTO; China on Definite Path to Decline”, and “China’s Hidden Potential for Total Collapse; Prospects Bleak”. 

The ‘China collapse theory’ that came to naught

But what eventually happened? Evidently, China’s development went the opposite direction of what The Economist and people such as Chang had predicted.

Not only did the Chinese economy not collapse as a result of their mudslinging, it grew tremendously. Statistics showed that China’s GDP jumped 173%, or an annual average of 10.5%, between 2002 and 2012. In contrast, global GDP grew 37% in the same period, or an annual average of 3.2%, while the US’s GDP grew 21%, or an annual average of 1.9%. That is to say, China’s GDP growth rate was 4.7 times that of the world’s and 8.2 times that of the US’s during that period.

... like the wave of “China collapse” theories around the turn of the millennium, the US has not been weakened by the prolonged and abundant rhetoric of decline. 

People walk across an overpass at the central business district in Beijing, China on 14 November 2023. (Jade Gao/AFP)
People walk across an overpass at the central business district in Beijing, China, on 14 November 2023. (Jade Gao/AFP)

Subsequently, between 2010 and 2022, while China’s GDP growth did slow down, it still reached a whopping 116.0%. Meanwhile, despite being the world’s fastest-growing major economy, India only recorded a GDP growth of 94.6% during the same period. In other words, India’s GDP growth rate was not as far ahead of China’s as was believed. On the contrary, China’s GDP growth rate was 23% higher than India’s during that period. China’s GDP grew at an annual average of 6.6%, while India’s figure stood at 5.7%.

Speculations of US and Japan

This is not only the case with China but also with the US. Arguments for American decline are nothing new. Professor Josef Joffe of Stanford University’s Hoover Institution once studied the issue and found that the myth of America’s decline is a “cyclical phenomenon” recurring once every decade. 

I agree with Joffe’s view because I came across a great deal of literature corroborating his argument when I was writing Will China’s Economy Follow in Japan’s Footsteps? (《中国经济将重蹈日本覆辙?》). But like the wave of “China collapse” theories around the turn of the millennium, the US has not been weakened by the prolonged and abundant rhetoric of decline. 

On the contrary, in the 1970s to the 1980s, Japan was completely bullish both internally and externally. In 1979, Ezra Vogel, leading American expert on Japan and professor emeritus at Harvard University, published Japan as Number One: Lessons for America, sending shockwaves through the US. The core argument of the book is that the rising Japan was about to replace the US and become world number one.

In September 1987, David Hale, chief economist for Kemper Financial Services, published a predictive essay comparing the impact that Japan in 1988 and the UK in 1896 would have or have had on the US. He concluded that Japan was becoming America’s biggest creditor, just as Britain was in the 19th century. Japan’s dream of defeating the US, which it failed to accomplish at Pearl Harbor, was being realised through economic means — Japan was peacefully occupying the US.

... a country’s economy and finance are not something that people can casually disparage and crush.

People walk along a street in Osaka's Dotonbori district, in Japan on 23 November 2023. (Philip Fong/AFP)
People walk along a street in Osaka's Dotonbori district, Japan, on 23 November 2023. (Philip Fong/AFP)

In fact, the Americans published many books with similar predictions during the same period. But regrettably, Japan did not catapult to world number one because of the numerous positive predictions. 

According to recent International Monetary Fund (IMF) projections, Japan’s nominal GDP on a US dollar basis in 2023 is expected to be overtaken by Germany and slip from third to fourth in the world. The IMF also predicted that India’s GDP is projected to rank fourth in 2026, while Japan is expected to slip to fifth in the world between 2026 and 2028.

Not subject to human will

The examples for and against mentioned above have proven the argument of Classical Marxist writers — the development of things is not subject to human will. This means that things do not change because of human thoughts, feelings and will, because all things have their own laws and methods of operation. These laws are objective, universal and can neither be created nor destroyed and therefore will not be altered because of man’s subjective will.

For example, the speed and direction of Earth’s rotation, the balance of nature, and the laws governing the operation of the economy are not subject to human will. It is precisely because of this that a country’s economy and finance are not something that people can casually disparage and crush. 

Instead, Classical Marxist writers taught us that the objectivity and universality of the laws requires that we must align with them and act accordingly, lest we be punished by the laws for the violations we make.

Related: The chaos of America is what makes it great | [Big read] Why China will not be the next Japan