/ Published February 13, 2019
Will China’s Economy Collapse? (The Future of Capitalism) by Ann Lee. Polity Press, 2017, 168 pp.
Many pundits around the world suggest that China’s economy is likely to collapse. Author Ann Lee, a frequent commentator on global economics and financial issues and adjunct professor of economics at New York University, assesses this topic in her book. She asserts otherwise by systematically refuting the purported macroeconomic issues creating the so-called economic fragility of China by drawing upon a number of direct comparisons to the United States. Her premise is, how could China’s economy be so at risk when it is in better shape than the US economy?
In setting the stage, the author notes that China has sustained an annualized growth rate of 10 percent over the last 20-plus years, an unrivalled and remarkable accomplishment. China’s economic turnaround is largely attributable to embracing a state-centered, export-oriented economic model—an approach closely resembling that which led to the economic successes of the “Asian Tigers”—Singapore, Taiwan, South Korea, and Hong Kong.
Lee begins her quest by highlighting the perceived debt issue China faces and quickly points out that China’s debt is largely internal to China. She believes that debt is only a possible problem when it is denominated in a currency other than your own. China’s debt is almost exclusively denominated in its own currency. Furthermore, China’s public debt is less than half that of the United States. China’s banks are healthier and more transparent than US banks. Lee espouses that China’s debt is trending down while its personal savings rate remains high at 50 percent—much more than that of the United States at less than ten percent. China’s government and state-owned enterprises’ aggregated debt is also relatively low at only 30 percent of the GDP—a fraction of that of the US GDP. Lee alleges that the shadow banking debt problem in China is greatly overblown and that the Chinese government has a better handle on its banking system than the United States does (e.g., the 2007 US banking and mortgage financial crisis).
The author considers the ghost cities and property bubble facing China as exaggerated. She asserts that unlike those of the United States, China’s fiscal policies are growth oriented. Capital controls on foreign currency are merely to keep foreign reserves high in China as a financial stabilizing force. China does not need financial reforms in regulating its foreign currency reserves, currency valuation, or interest rates. These reforms would only help the West. She ultimately sees the Chinese Renminbi rising to become an international currency, ultimately replacing the US dollar as the premier vehicle of currency.
The author believes that the chances of an economic crash in China are remote due to the complex and diverse nature of the Chinese economy. She claims the Chinese government has the innate ability to use monetary and fiscal policy to overcome any economic slowdown, thus averting the possibility of an economic crisis. Author Lee lauds China’s monetary policy that targets industries for growth, whereas US policy does not.
She emphasizes that the population decline in China will only cost its GDP a half percent in growth, raising real wages of Chinese workers to their benefit while not hurting China’s international competitiveness. Shortages in skilled workers are readily dealt with through worldwide recruiting. She further suggests that the personal consumption level of China’s GDP is grossly understated and that the country is not overly export dependent to grow its economy.
The poverty and healthcare issues China faces are swiftly being tackled by private and state investment. China’s anticorruption campaign has made for better corporate citizens in China than exist in the United States. China’s corruption campaign led to a significant reduction in US luxury goods sales in China. She claims these goods were previously used to bribe Chinese business leaders and are no longer marketable in China.
Lee believes that China is the world’s growth engine and a better investment than the United States. China provides opportunities for skilled worker while the United States focuses on empowering the rich. The United States spends its time opposing vice-fostering Chinese initiatives that promote trade, foreign investment, and infrastructure development for evolving countries, thus undermining their economic growth (e.g., US opposition to China’s Belt and Road Initiative and the China-led Asian Infrastructure and Investment Bank). Finally, China’s growing defense expenditures are a direct counterbalance to US presence in East Asia and a reflection of its goal to protect its interests against US aggression.
Although the author touches upon some of the most notable pundit concerns affecting the Chinese economy, she comes up woefully short in substantively challenging them and then meaningfully assessing them against the United States. As such, the book reads as very shallow; rather than scholarly rigor, it uses conversationally reasoned conjecture supported by anecdotal analysis. Indicative of the lack of the book’s rigor is that of the 21 sources she does cite—one being herself, the vast majority are newspaper pieces and popular Asian-focused monthly business journals. This fact also undermines the credibility and value of the book.
Finally, it is blatantly biased toward China. The reader will find little in the way of objective perspective. Lee fails to mention or adequately report on such things as China’s controversial trade policy and foreign business practices, patent violations, lack of intellectual property protection, and state-sponsored corporate espionage. Regarding China’s macroeconomics, she makes light of China’s habitually false or misleading economic data reports that indicate greater economic growth than the ground truth. She provides no reference to shrinking foreign direct investment into China. Nor does she mention China’s struggle to shift from an industrial-based to a service-based economy or that China is now investing more in manufacturing in other countries than in its own. All of these factors are telltale signs that China is losing its manufacturing competitive edge. Additionally, China faces huge demographic issues undermining its economic growth going forward. China has an aging population and a low birth rate, resulting in a labor shortage and higher labor costs that are adversely affecting its trade competitiveness. The author does not acknowledge this situation at all. Moreover, China has an underfunded healthcare system, making the aging population situation even more problematic. China also has an aggregate debt per capita greater than that of the United States and an environmental cleanup crisis requiring trillions in US dollars to adequately address. In other words, the Chinese government is facing growing social welfare obligations that are outpacing tax revenues. In closing, the above-mentioned is all under a backdrop of growing resentment toward China throughout the international community—not an enviable position to be in.
Unfortunately, this book is best read by those merely interested in a purely Chinese opinion piece rather than an enlightening, well-informed, objective, and thought-provoking body of work on one of the most critical global economic concerns/challenges impacting the international community today.
David A. Anderson, PhD
US Army Command and General Staff College
"The views expressed are those of the author(s) and do not reflect the official policy or position of the US government or the Department of Defense."