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Will China Collapse Like the USSR?

Although China has been one of the world’s fastest-growing economies, averaging 10 percent growth in GDP for nearly three decades, it began losing momentum in 2012. As a result of emphasizing manufacturing and exports rather than consumption, poor quality control, and lax banking practices, China is now experiencing a housing bubble, high unemployment, severe  pollution, and growing social unrest. These have caused a ripple effect throughout the economy. Could China—once called the next superpower—collapse? James Fallows reports that “China is less free, less open, and more belligerent that it was five years ago, or even ten.” [i]

On the other hand, China is also implementing its “One belt one road” policy that carries forward the growth momentum to establish trading partners around the world. It is cracking down on internal dissent and corruption as well as espousing globalization and a leader in taking steps to reduce global warming. Its leaders plan to eliminate absolute poverty by 2020 and become the dominant developed country by 2035.

 

Signs of Decline

The signs of trouble in China are serious: slowing growth, mounting risk and debt,  poor quality, increasing unemployment, environmental pollution.The central bank chief has recently warned of ‘Sudden, Contagious and Hazardous’ financial risks that the Chinese financial system is facing due to easy credit and high levels of debt. [ii]

More than 13 million tons of crops harvested each year are contaminated with heavy metals, and 22 million acres of farmland are contaminated by pesticides. Although no scientific proof is available, it is suspected that numerous cancer deaths are linked to industrial waste in the food chain. Some 400 cities in northern China suffer water scarcity. More than half the region’s groundwater is so polluted it should not be allowed to contact human skin.[iii]

The existing oversupply of peasant and college-educated manufacturing labor is being worsened by automation. Foxconn, an electronics manufacturer, aims to replace 1 million workers with robots in this decade, and robotics are projected to expand at over 18 percent annually in the coming years. These changes will save money and reduce waste but will eliminate many jobs. 

China became the world’s leading car manufacturer with the purchase of Volvo from Ford in 2010. However, to reduce congestion and air pollution, the government is limiting car registrations in Chinese cities, which will further slow economic growth. 

The ratio of old to young in China is decreasing from 5 to 1 to 1.6 to 1, making this one of the oldest societies in the world. The preponderance of old people is decreasing savings and economic growth. 

 

China’s Strengths

But the Chinese economy has great strengths that could withstand crisis. Economists estimate 10 to 20 percent of China’s economy is off the books. Many companies keep three sets of accounting records—one for official purposes, one for investors, and one for themselves. Private consumption in China continues to rise, reflecting the increasing affluence of the households. While growth has moderated in recent years, consumption expenditure per capita continues to grow at nearly 7 percent per annum.[iv]

China is the world’s largest exporter, with the highest revenues in textiles, electronic equipment, agriculture, and chemicals. It is also the world’s second largest importer. Recent estimates suggest the new consumer-led economy could generate 36 trillion renminbi (US$5.6 trillion) of additional GDP by 2030, compared with continuing the present export path.

Five-Year Plans have brought over 500 million people out of poverty since 1980. Large-scale surveys indicate a majority of Chinese people support the government, which has stoked nationalism to promote unity and inhibit dissent.  The government also owns much of the land, which has the largest reserves of precious metals in the world. 


Most Likely Forecast

There a few guides to estimating a highly uncertain event like the fall of a superpower. The best example is that nobody foresaw the collapse of the USSR. It is clear thatChina’s GDP growth has been below 7 percent recently, with further weakening to 6.4 percent forecasted by 2019. [v]

Such conditions of high uncertainty are exactly where the TechCast system of collective intelligence excels.  Pooling the judgment of our Global Brain Trust of experts over this issue produces the following a consensus. They collectively estimate a low probability of China’s collapse over the next few decades, about  15 percent. Of course, that could change as conditions develop, and we could be surprised by a sudden catastrophic tumble anytime. In the event of a China collapse, the impact is thought to be serious, -3 on a ten-point scale. 


Strategic Implications

The cost in world economic growth could be considerable. The economies of China’s largest trading partnersthe US, Europe, Korea, Japan, Russia, Australia, Brazil, Canada, Chile, Peru, and South Africa—would also suffer from lost export revenues. 

China has gone from receiving aid to providing needed loans to the US and Europe. An insolvent China would hinder global recovery from future economic downturns, increase the cost of borrowing money, and inhibit the world’s economic growth for years to come.

Regime change would alleviate much of the social unrest by the lower class and emerging educated middle-class dissidents. Economic and political reforms could result in more personal freedoms and democracy within China.


[i]Atlantic, Dec 2016

[ii]Bloomberg, Nov 4, 2017

[iii]CNN, Apr 20, 2017

[iv]BBVA Research, March, 2017

[v]OECD, Nov, 2017

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