Dr. Yan Liang at the Williamette University (Oregon, U.S.), writing in a Working Paper for the Levy Economics Institute, takes on ‘*The Coming Collapse of China’ narrative.
[*Title of a famous book from 2001 coming up for its 25th year of spectacular wrongness. It’s author, Mr. Gordon G. Chang, continues to shamelessly appear in the media (Fox, a lot) as a ‘China Expert’. Yes, really.]
This is a well written and short document packed with an abundance of pertinent facts, anecdote and useful observation. It’s an elegant summary and I’ve had trouble clipping it shorter. But here goes.
There are four issues that most often come up as ‘if things go on the way they are, there’ll be trouble’ talking points for China. They are: Deflation, Debt, Demographics and De-risk/coupling.
Each are given an airing in the paper and what many believe are unnavigable existential threats are revealed as anything but. Videlicet:
- Deflation: The key problem is weak consumer demand. This is a product of a high savings rate that’s gotten worse after COVID. A number of fixes are required. Social safety nets have to be improved, more and better jobs are required for the young and fiscal and monetary stimulus need to be dialed up (its ongoing). As with other issues below the key point is authorities are aware of a problem and are on the case with a multitude of fixes. If these don’t work, they’ll try something else.
- Debt: Since COVID and the global blow-out in debt around the world we seem to hear less about China’s specific problems. On further examination this problem largely evaporates when we consider the biggest component of calculations is public or semi-public obligations. The true level of private sector debt is no larger than Korea or Japan and household debt is nowhere near the levels of developed economies. Final point, it’s nearly all Rmb-denomiated, which doesn’t mean it doesn’t matter but, in reality, it sort of does.
- Demographics. There is no correlation between economic progress and the average age of a society (if there were, Nigeria, Indonesia and parts of the Middle East would be roaring ahead, and, er, they’re not). China still has 24% of its workforce on the land and there’s a massive pent up dividend there as hayseeds up their game. The quality of labour has also increased dramatically. Young workers entering the labour force have on average 8-years more education than the retiring generation. Finally, whose the biggest installer of robots in the world today? Quite.
- De-risk/coupling. China hasn’t just sucked on the teat of U.S. consumer demand since joining the WTO. They’ve made friends with a lot more of the world. For example, over 45% of their exports went to Belt and Road countries in 2023. Moreover, they’ve maintained an active dialogue with the U.S. for many years (which is why the Geneva Convention recently went so smoothly?). They’ve also moved up the value chain so their vulnerability as a manufacturer has been greatly reduced.
The bottom line is the Chinese government doesn’t have problems they’re not fully aware of and are currently doing their darnedest to fix. Only if you believe they’re going to fail completely in all these efforts can you imagine China on the brink of collapse.
Others are welcome to persist with their belief in this fantastic notion. I can’t/don’t/won’t acknowledge a possibility so at odds with in-plain-sight observable reality.
You’ll find the paper in full at the following link A Critical Examination of the “China Collapse” Narrative.
Happy Sunday.