Warnings Of China's Collapse Are Premature As The Nation Still Has One Of The Largest Economies

If China's economy were to collapse, the ripple effect would touch virtually every corner of the globe, given the interconnectedness of today's global economy. China stands as one of the world's largest economies, and its economic activities significantly influence global markets, supply chains, and geopolitical dynamics.

A total collapse of China in the near term, even with many Western firms reducing their exposure to China's economy, would collapse the global economy, some experts believe. According to them, it would precipitate the largest global recession — possibly even a depression — in decades.

But are these concerns rooted in reality?

Among scholars and analysts who specialise in Chinese affairs, there is an increasing buzz surrounding the possibility of China's economy undergoing a monumental shift, or even an unprecedented decline. The spectrum of conjecture ranges from the outright collapse of China, a scenario that many would view as nightmarish, to more moderate yet still deeply unsettling economic ramifications.

It's imperative for the global community to comprehend the broader implications of such potential outcomes. A China in economic distress could introduce a myriad of challenges, the reverberations of which might be felt across international borders, affecting economies, geopolitics, and global stability at large.

In China, the presence of an expansive and ever-increasing nuclear arsenal, combined with other potent forms of mass-destruction weaponry, accentuates the gravity of any political or economic instability. The potential consequences of such a powerful nation undergoing turbulence can be far-reaching.

Under the leadership of Xi, characterised by many as autocratic, China has seen a centralisation of authority that harks back to the era of Mao. With greater consolidation of power, the weight of responsibility rests heavily on his shoulders. In prosperous times, President Xi received accolades and commendations, with many attributing the nation's successes to his leadership.

However, the flip side of this coin has become evident in the challenges China has faced since 2019. As the nation grappled with various crises, criticisms have been directed towards Xi, holding him accountable for perceived shortcomings and failures. This atmosphere of heightened scrutiny has, in many respects, compelled President Xi to further tighten his grip on power, as he seeks to secure his position and stave off any potential threats to his leadership.

A collapse of China's economy would disrupt international trade in a profound way. As a leading producer of goods and a major exporter, any halt or reduction in China's production capabilities would create shortages and raise prices for many products globally. This would impact businesses and consumers around the world, potentially leading to economic slowdowns in countries heavily reliant on trade with China.

The global financial sector would also be affected. Investors around the world, who have substantial holdings in Chinese stocks, bonds, or other financial instruments, might face considerable losses. This could result in reduced confidence in global markets, potentially sparking financial crises in various regions.

Additionally, many countries, especially those in the developing world, have taken on Chinese debt to fund infrastructure projects. If China's economy collapses, it could make it difficult for these countries to repay their loans or receive further funding, potentially leading to debt crises.

Geopolitically, a struggling China might alter its foreign policies, perhaps becoming more inward-focused or, conversely, more assertive in its regional ambitions. This could change the balance of power in Asia and influence global politics in unpredictable ways. Relationships with neighbouring countries and other major powers, like the United States, could become more strained.

Within China, a collapsing economy would have dire social implications. Mass unemployment and the potential for social unrest could arise, challenging the country's leadership and possibly leading to increased authoritarian measures to maintain order.

The collapse of China's economy would not just be a domestic issue for China but would reverberate globally, affecting trade, finance, politics, and societal structures across many nations.

At the same time, predictions regarding the imminent collapse of China may be premature for several reasons. Firstly, China has a track record of resilience and adaptability. While the country has faced numerous challenges, including famines, political upheavals, and economic downturns, it has repeatedly demonstrated an ability to navigate these issues.

Additionally, China's economic foundation is robust. Its diversified economy, ranging from manufacturing to technology to services, gives it a multifaceted strength. While certain sectors may face challenges, others can sustain the economy's momentum. The country's vast domestic market, with a population of over a billion, offers a buffer against external economic shocks, as internal consumption can drive growth even when exports falter.

China's political structure, characterised by centralised decision-making, can facilitate swift responses to economic challenges. The government has considerable resources at its disposal to stimulate the economy, regulate industries, and ensure stability. This ability to rapidly implement policy decisions can be advantageous in managing and rectifying economic downturns.

In addition, China has been investing heavily in research and development, positioning itself as a global leader in several high-tech industries. This focus on innovation ensures that China's growth isn't solely dependent on traditional industries but is forward-looking, tapping into sectors that promise future growth.

China has its fair share of debt and economic challenges, and it is essential to understand these within the broader context of its assets and economic strengths. The country possesses significant foreign reserves, a considerable manufacturing base, and an increasingly skilled workforce.

While no country, including China, is immune to economic challenges or potential downturns, it's crucial to approach warnings of China's collapse with a nuanced understanding while taking the threat seriously.

By Daniel Elliot

Daniel is a business consultant and analyst, with experience working for government organisations in the UK and US. On his free time, he regularly contributes to International Business Times UK.