Opinion: The collapse of 'the coming collapse of China' theory
Updated 20:33, 26-Jan-2019
John Gong

Editor's note: Dr. John Gong is a research fellow at Charhar Institute and professor at the University of International Business and Economics. The article reflects the author's opinion, and not necessarily the views of CGTN.

About 20 years ago, there was a lawyer from Los Angles by the name of Gordon Chang, who wrote a book, “The coming collapse of China.” Chang's main theme in the book is that the hidden nonperforming loans of the Chinese state-owned banks would likely bring down China's financial system and the governing regime.

The People's Bank of China headquarters in Beijing, China, January 7, 2019. /VCG Photo

The People's Bank of China headquarters in Beijing, China, January 7, 2019. /VCG Photo

He then repeatedly called the same lunatic shot in 2006, 2011, 2012, 2016 and 2017, and they were so painfully wrong that the humiliation in public has already dwarfed the credibility he still had left.

With the official 2018 GDP figure in China released just a few days ago, I guess Chang got one more shot in the arm. Aside from him, there are plenty of pundits around to carry on his baton. The business of the coming collapse of China is far from over, and is certainly not collapsing any time soon.

Many Western media outlets have called the 6.6-percent GDP growth rate the slowest growth in China in the past 20 years. And there are plenty of risks in China's financial markets, as the government economics conference official document openly admitted a few weeks ago. 

'Stop freaking out about our economy!'

That is the headline CNN ran this week about Vice President Wang Qishan's speech at the World Economic Forum, which is a resounding rebuttal to those naysayers. He said that growth remains substantial, and that it's important for China to focus on the long term.

Let me further put things into perspective. A 6.6-percent growth rate in 2018 makes China the 12th fastest economy in the world, only after India and Vietnam, if excluding the rest of the world's minor economies. China's economic size this year stands at about 13 trillion U.S. dollars, making it the second largest economy in the world in nominal terms, and the largest economy in terms of purchasing power parity.

VCG Photo‍

VCG Photo‍

At 6.6-percent growth, China essentially created a new economy the size of the Netherlands last year, which is the world's 17th largest economy. And to defy the naysayers' dubious wishes, let's suppose we are so creative and business is so great here that we can keep growing at this pace for another five years. That would be like creating another five-trillion-U.S.-dollar economy in just over five years, which is the size of Japan, the third largest economy in the world!

As we grow bigger and bigger, the old adage that the sky is the limit eventually applies. Slowed growth is simply inevitable. This is basically due to the law of diminishing returns. 

That is why economists have developed the beta-convergence theory to postulate that poor economies growing faster than rich ones will eventually they all converge to some steady state where growth is going to be very moderate, like two to three percent, currently the rate in Europe and the U.S. 

I for one believe that we are very close to the five-percent growth territory. We would be lucky to keep growing above six percent for another two more years. Within a decade, China's economy would be very much like America's developed country status where three-to-four percent growth a year is considered an exceptionally good year.

Now I do concede the economy is slowing down aside from the larger historic trend delineated above. The GDP growth figures in the last four quarters declined consecutively. But this is mostly against the backdrop of the global macro environment and the trade war imposed on China by Washington. But recession or not, China's economy is not going to slide down into a disastrous collapsing scenario purveyed by Chang and the like.

And besides not all GDP are created equal. China is now focused on quality growth, which emphasizes more on efficient, balanced, equitable, and sustainable growth in the future. Keep your fingers crossed that China and the U.S. will reach a trade agreement by March 1, and the reform and opening-up process will continue to accelerate. 

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