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China’s Economy Is Headed for One of the Largest Meltdowns Ever

China Yuan Note
A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

To stimulate the economy, China’s regulators are forcing Chinese banks to meet high loan quotas.

(Editor’s Note: Watch the author of this expert analysis, 19FortyFive Contributing Editor Gordon Chang, on Fox News discussing tensions with China.)

To hit the difficult-to-attain targets, ingenious bankers are lending and simultaneously allowing borrowers to deposit identical amounts with their institutions at identical interest rates.

Companies no longer want money to launch new projects. Pessimism about the economy dominates thinking in Chinese boardrooms and throughout the rest of society.

The big story is not that the Chinese economy is falling apart. It is, at least apart from the export sector. The big story is that China’s stimulus efforts, so successful in the past in jumpstarting growth, are no longer working. The country’s economy is, in a word, exhausted.

In the past, when the economy look fatigued, China’s business community could count on the central government to create growth with massive stimulus programs. That is, after all, how former Premier Wen Jiabao avoided contraction in China as the rest of the world suffered during the 2008 downturn.

Wen went big. In the half decade beginning in 2009, Beijing added an amount of credit equal to that in the entire U.S. banking system. The premier flooded an economy that at the end of 2008 was not even a third the size of America’s.

Wen went too big. Anne Stevenson-Yang of J Capital Research tells me that the Chinese have long compared their country to a train whose last car is on fire. The train has to go fast to make sure the flames blow backwards. As soon as the train slows, flames engulf the passenger cars.

“That is China and debt,” Stevenson-Yang, also author of China Alone: The Emergence from and Potential Return to Isolation, says. “If you add enough money to the system, you can keep refinancing the old debt, but you have to add money exponentially.”

The country has been exponentially incurring indebtedness, perhaps creating debt about seven times faster than it has been producing nominal gross domestic product.

Nobody knows how much debt China has accumulated, but total country indebtedness could be an amount equal to 350% of GDP. Because of the infamous “hidden debt” and Beijing’s misreporting—exaggeration—of economic output, the percentage could even be higher.

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However much debt there is, senior Chinese leaders are facing problems they cannot solve, something evident from, among other things, defaults by large property developers, the so-called “mortgage boycotts” of homeowners refusing to pay loans, and bank runs.

The Communist Party knows—and has known for a long time—the game could not go on forever. Wen Jiabao himself in 2007 talked about what has become known as the economy’s “Four Uns.” Growth then, he said, was “unstable, unbalanced, uncoordinated, and unsustainable.”

What happens now?

Wen’s successor, Premier Li Keqiang, in March announced a 2022 goal of “around 5.5%” growth, but senior leaders are now telling ministerial and provincial-level officials that the figure is mere “guidance” and not a “hard target.”

Beijing’s official numbers suggest that the lowering of expectations is a recognition of reality. The National Bureau of Statistics reported 4.8% growth in this year’s first quarter and 0.4% in the second.

Most analysts just assume growth will moderately decline in the years ahead. That assessment looks wrong, however. “We would not just be reverting to the sustainable growth rate, but we would also be reversing much of the previously recorded unsustainable growth,” Michael Pettis of Peking University’s Guanghua School of Management predicted in a September 3 tweet.

Pettis, also a senior fellow at the Carnegie Endowment for International Peace, has politely suggested with his tweet that China’s economy will begin an extended period of contraction. Given the country’s massive debt overhang, a slowdown in reality means a crisis.

Last fall’s failure of Evergrande Group, which effectively triggered other defaults in the crucial property sector, is a warning of what will happen country-wide.

Beijing is now trying to avoid the downturn, and analysts take heart that Beijing is adopting various measures to create gross domestic product. Premier Li at the end of last month at a State Council meeting said the central government’s stimulus programs are “more forceful” than those of 2020. He also called the programs “reasonable” and “appropriate.”

Li issued his comments after announcing a 19-point plan, which included funding of more than 1 trillion yuan ($145 billion).

Chinese Yuan

Chinese Yuan (Image: Creative Commons).

As Bloomberg reported, the premier’s announcement was greeted with skepticism from economists. One does not need to be an economist to be worried, however. It’s obvious that the spending of more money on nonproductive investments cannot avoid a crisis for long.

After all, fire, as Stevenson-Yang might say, is engulfing the passenger cars of the train called China. There is now no hope the country can avoid one of the biggest economic crises in history.

Expert Biography: A 19FortyFive Contributing Editor, Gordon G. Chang, is the author of The Coming Collapse of China and The Great U.S.-China Tech War. Follow him on Twitter @GordonGChang.

Written By

Gordon G. Chang is the author of The Great U.S.-China Tech War and Losing South Korea, booklets released by Encounter Books. His previous books are Nuclear Showdown: North Korea Takes On the World and The Coming Collapse of China, both from Random House. Chang lived and worked in China and Hong Kong for almost two decades, most recently in Shanghai, as Counsel to the American law firm Paul Weiss and earlier in Hong Kong as Partner in the international law firm Baker & McKenzie.



  1. Rob M

    September 5, 2022 at 8:30 pm

    Communist China will continue to prime the pump of unsustainable growth with worthless currency. Sooner or later, they will focus the population’s discontent and anger on an external threat and they will use Western intervention against their attempt to take over Taiwan as an excuse.

    Tick, tick, tick…

  2. Barry Cullen

    September 5, 2022 at 8:53 pm

    Couldn’t happen to a “nicer’ bunch of crooks!

  3. Thomas Blair

    September 5, 2022 at 8:53 pm

    Anyway, it was a good 50-year run for the CCP.

  4. FarmerLon

    September 5, 2022 at 10:05 pm

    Great article, Mr. Chang. My fear is that the US is following in the same path. Also what desperate acts will China do or the US to get out of this mess? I don’t like the answers that come to mind.

  5. Dolphy

    September 5, 2022 at 10:21 pm

    Really thought provoking.What will happen to the world economy when China crisis hits.

  6. Chip Henry

    September 5, 2022 at 10:57 pm

    I do everything I can to keep from increasing China’s GDP. When forced to buy China, I resent it.
    Japan was once a low end manufacturer. Over time they realized repeat business meant they needed to up their game, to sell quality, and they did. South Korea had gone a long way down that route as well. When you compare China’s quality with either of those two Asian nations, there is a huge contrast. Buy China once and you’ll be replacing it way too soon. I paid 3x for a bathroom scale. My first one, a China-made one, lasted just over a year. My made-in-USA replacement, well, I can’t remember how old it is now. I change batteries and it keeps performing.

  7. Chip Henry

    September 5, 2022 at 10:58 pm

    I wish I hadn’t committed. This site is too liberal for my taste.

  8. Jan Manas

    September 6, 2022 at 12:04 am

    I read Gordon’s book about the coming collapse of China, might have happened back when he wrote it. Now he’s predicting it again. Probably going to write another book on China’s “collapse”. China has unlimited money, mostly from us. Collapse? Maybe with their internal real estate, certainly not with their global purchases. What a joke! World’s largest navy, can choke global shipping, took Hong Kong without a sweat, Taiwan is next to hold the world’s microchips hostage, etc. etc. etc.

  9. Charlie Brannan

    September 6, 2022 at 12:36 am

    Writing from Shanghai, this article is a joke. Gordon Chang has been writing about the demise of the People’s Republic of China for how long? Wasn’t it supposed to collapse in 2011? Then 2012? China is in the midst of COVID lockdowns that are negatively impacting the China economy, but the country is still functioning. People are still working hard, new businesses continue to prosper, investors are still looking for new opportunities. When will the USA wake up and realize this charlatan doesn’t know that much about China?

  10. pagar

    September 6, 2022 at 2:02 am

    China has been in a meltdown since 2001 but that year was saved by Osama as a result of his infamous derring-do.

  11. 404Forbidden

    September 6, 2022 at 6:33 am

    Biden yesterday in Wisconsin said “Everybody’s entitled to be a fool” and thus his benefactor xi jumping is a really big fool.

    Xi needs to eject all the crystal ball gazers, ‘tutors’ and business connections or intermediaries and clean up his act to avoid being a fool as described as Biden.

    Further, he needs to request everybody who’s not a fool to have at least three months’ worth of reserves of essential items like toilet paper, toothpaste, liquid soap, instant noodles, canned pickles and the like.

    Lastly, he needs to remind everyone who’s not a fool that this coming winter will see a shortfall in fuel and other heating commodities like coal due to Biden’s upsurge in channeling weapons to europe proxy war.

    When those conditions are met, nobody’s gonna be worried about no meltdowns.

  12. Divia

    September 6, 2022 at 9:38 am

    Pay attention folks this is the same path that the US is on, except we’re about 20 years behind China . With the advent of NAFTA, TARP, quantitative easing and unlimited monetary printing, encouraging the privatization and manipulation of the stock market, and the unlimited pumping of funds to keep it artificially high, allowing free access of the same stock markets to foreign investors (not all of which are friendly to the US) and other disastrous financial policies put into place by the democratic/socialist/communist left; we now have the same overarching problems that China has created for itself. An economy that is unstable, unbalanced, uncoordinated, and unsustainable.

  13. Bender

    September 6, 2022 at 9:52 am

    Fun fact:

    They still have the face of Mao Zedong printed in all of their banknotes…

    The very same Mao Zedong who killed tens of millions of Chinese people.

  14. Erik Eklund

    September 6, 2022 at 9:59 am

    US and China engaged in a race to the bottom… we all lose.

  15. Ricardo A Pacetti

    September 6, 2022 at 10:09 am

    Now would be the time to pull as much manufacturing out of China and reinstate to the US.

  16. Dfergi

    September 6, 2022 at 10:22 am

    “The Communist Party knows—and has known for a long time—the game could not go on forever. Wen Jiabao himself in 2007 talked about what has become known as the economy’s…”
    So for almost two decades the Chinese econemy was supposed to collapse? But instead it has since grown massively. Just last year over 11%

  17. Astro Bullivant

    September 6, 2022 at 10:53 am

    Gordon Chang has predicted the collapse of Communist China so often that he’s lost credibility. Maybe he’ll be right eventually, but his forecasts seem premature right now. China still has tons of foreign lobbyists getting Wall Street to give it money. China still owns the NBA and most university campuses. Tons of university professors and administrators in America support the CCP. In Australia, University of Queensland still actively condemns Drew Pavlou for speaking out against China’s government. Communist China is showing a few signs of decline, but I think you’re overstating them.

  18. Old Vet

    September 6, 2022 at 11:18 am

    And how have countries survived this problem in the past, through conquest of other territories by starting phony wars to build up the economy with government spending.

  19. Scooter Van Neuter

    September 6, 2022 at 11:41 am

    No doubt, brilliant financial analyst Dementia Joe could give the Chicoms some solid pointers…

  20. Frank Martin

    September 6, 2022 at 2:01 pm

    While this is great if true due to the Chicoms malign actions, Chang has been telling us of Communist China’s imminent collapse for some time now. Still waiting….

  21. HAT451

    September 6, 2022 at 2:40 pm

    Communism, or centrally directed economies and for a period of time appear prosperous, in the end they meet the needs of the nomenclature, and not the majority of the people. In the end there is little or no demand what what centrally directed economies produce, and the system implodes.

  22. Leo Pold

    September 6, 2022 at 4:13 pm

    Seems a rinse and repeat cycle what the US plays with every country it lifts up temporarily to exploit. Build up the industry with loans, import a shitload of cheap products it created, and rake in the profits. Then once the supplier country gets too prosperous or independent for its britches, let it implode under the weight of loans it took and move on to the next.

  23. Snake

    September 7, 2022 at 10:15 am

    As Sunxi wrote in his thesis THE ART OF WAR 4500 years ago.

    “When internal troubles began to surmount the populace, TURN THEIR EYES OUTWARD AND FIND A COMMON ENEMY”

    What people do not understand, it is NOT the economy but the FOOD SUPPLY! 99 percent of all revolutions through history are based upon the LACK OF FOOD! When a country has starving masses and the people not look at themselves but their CHILDREN starving, THAT is when grave problems commence. America was and IS the only country’s revolution based upon unfair taxation, which was an exception. China and gates are buying up all farm land. Not a good thing.
    We invented a NATURAL (no gmo’s) fertilizer which grows ALL plants food and otherwise by acclarating their growth and has an elevated Carbon content. If you desire to know more about it, we will send 12-13 emails with photos from OUR clients from the Phillipines, Kosovo and Canada with their results. [email protected]

  24. TexasBobcat

    September 7, 2022 at 11:46 pm

    The west and its allies, including South Korea, Japan, Taiwan, The Philippines should all rally to push the Chinese economy over the cliff.

  25. Bill

    September 8, 2022 at 9:45 am

    Mr. Chang published his ‘prophetic’ tome “The Coming Collapse Of China” in 2001, predicting the economic collapse by 2010. We’re still waiting.

  26. OIF Combat Vet

    September 8, 2022 at 11:01 am

    No worries, Joe and Hunter will bail them out.

  27. DT

    September 8, 2022 at 11:14 am

    China is failing books do well in the USA. Chinese factories build to specifications set by customers. If your stuff is no good blame your retailer or seller. Good Chinese made stuff is available, like Under Armor, Apple, Nike, and nearly all sports supplies.

  28. Al

    September 8, 2022 at 3:53 pm

    Check out the YouTube channels SerpentZA and Laowhy86 for information about China. They lived in China for a long time and give explanations from an “on the ground” perspective.
    Gordon Chang’s principles may be sometimes correct, but they’re too much from a scholarly POV.

  29. GhostTomahawk

    September 9, 2022 at 1:51 pm

    The US has been doing this for years. Our inflation is massive and the way we report it depicts a reality that is pure fantasy.

    If the US wanted to cure its problems it could. The sacrifice would be the hand outs they use to bribe voters. America is like a married couple. They have to replace their roof but the wife has a spending problem.

  30. Robert Starner

    September 10, 2022 at 8:46 pm

    Why would Fox News have a dumb jerk like this on their news clip commenting on what the U.S. should do now with China. So what, he wrote a book about China. He is definitely not an expert about China. What a shame giving all of this wrong information. Shame on Fox News for spreading mis-intormation.

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