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The Future of Capitalism series

Steve Keen, Can We Avoid Another Financial Crisis?

Ann Lee, Will China’s Economy Collapse?

Will China’s Economy Collapse?

Ann Lee



I want to extend a warm thanks to Dr Louise Knight for approaching me to write this book. I have given speeches about this topic on a number of occasions, but putting it in writing has enabled me to flesh out my argument. I also want to express deep gratitude to Frank Arlinghaus, Alex Castaldo, and Dominieck Dutoo for their feedback on early drafts of my manuscript. A tremendous thank you goes to Javier Hernandez, who provided extensive legal assistance and generosity in numerous other ways. And my biggest thanks go to my parents and my brother John for their unending love and support for all that I do in life.


Will China’s economy collapse? Many informed people have publicly stated that they believe it will. Books that have prognosticated this outcome declared this state of emergency over a decade ago. While China has not yet collapsed as of this writing, many hold on to the belief that such a calamity remains imminent. There are numerous logical and compelling reasons to support a scenario of collapse. Without doubt the growing uncertainties around the world have added to this fear. Moreover, as China is the largest trading nation in the world and second largest economy as of 2016, there is an underlying fear that, according to the popular saying, if it sneezes, the world will catch a cold. Events such as China’s stock market crashes during the summer of 2015 and January 2016 in addition to the well-publicized existence of its ghost cities and its shadow banking industry have investors and politicians alike increasingly worried.

Although there is no specific definition of economic collapse, there is a general consensus that it is a situation in which there is a sudden occurrence of extreme negative conditions that then persist in the economy for a prolonged period. Various manifestations of an economic collapse could include any combination of the following conditions: an unusually high number of bankruptcies, high unemployment, breakdowns in civil society, increasing mortality rates, and widespread famine. History is littered with such scenarios.

While the reasons behind the collapses vary across continents and centuries, there appear to be some common themes and cycles. One common pattern is that when countries or empires undergo disruptive social change like growing liberalization, economies often experience high growth. This was the case both in the ancient world and in medieval times when growing social and economic liberalization paved the way for the Greek and Roman empires and the Spanish Empire, respectively. However, when these countries and empires overstretch themselves in military adventures, economic collapses often follow. In the case of the Roman Empire, once the army took control (ca. AD 276–401), they taxed the middle class out of existence to fund expensive wars so that all that remained was a slave underclass. Spain’s ongoing wars also led to its collapse as a global power in the seventeenth century. In more recent examples, Great Britain’s empire began with the nation’s industrialization, which likewise coincided with growing social and economic liberalization during the eighteenth and nineteenth centuries. Similarly, the end of Pax Britannica coincided with involvement in two world wars. The Soviet Union also experienced rapid growth following the Communist takeover, which liberalized its society from generations of feudalism. However, its economy collapsed in the 1980s after engaging in a decades-long Cold War against the United States.

Whether China will undergo an economic collapse comparable to the examples above is something to explore. Like the aforementioned cases, it has experienced growing economic liberalization in the last few decades that has enabled it to attain its current superior economic status. However, many in the West now wonder whether China is on the brink of collapse since they believe its financial system, military program, and growth model are opaque and unsustainable. While it is impossible to cover all possible scenarios given the infinite number of variables that would need to be taken into account for a truly comprehensive analysis, in this book we will explore the most probable causes of economic crisis in China. Common arguments for an imminent collapse will be dissected and subsequently found to be grossly exaggerated. Years of working in the financial markets and countless discussions with policymakers and regulators have shown me time and again that reality does not necessarily line up with academic theory. But let’s first begin by analyzing the vulnerable aspects of China’s economy to discern whether they are indeed sufficiently weak to generate forces that could have catastrophic domestic and global consequences.