Name: The briefing paper discussing the economic issues China is likely to face in the near future is intended for Armida Salsiah Alisjahbana, the UN’s Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP).
Subject: Worries of a Chinese economic freefall and associated concerns about the sustainability of global markets that are dependent on China.
The history of China hints at the potential challenges the nation may face in the near future. From the mid-nineteenth century until the rise of the Communist party after World War II, China has gone through a century-old period of political, social, and economic chaos (Friedman 2009). Although the country got significantly stronger due to Mao’s unification efforts, his successors were the ones who truly managed to secure China’s position in the global economic arena. Thus, as Deng Xiaoping, China’s leader following Mao’s death, realized that the nation could possibly prosper while remaining isolated, he decided to open the borders, primarily for international trade (Friedman 2009). As a result, Xiaoping’s strategy has produced triumphant outcomes, including China’s rapid economic growth and prosperity. Since the late 1970s, economic reforms in China have ensured to lift more than 800 million people out of poverty and keep the country’s GDP growth at an annual average of 10 percent (The World Bank 2021).
However, the Chinese economic wonder has run its course and starts to end, although not as rapidly as it started. The World Bank (2021) reports that China’s growth has been largely attributed to “resource-intensive manufacturing, exports, and low-paid labor” although each of these aspects has reached its limits, which threatens to result in economic and social imbalances (para. 3). Over the recent years, the economic growth of China has slowed significantly and is now close to 7 percent (Belsie 2019). There are multiple causes as to why the Chinese economy may be on the verge of collapsing in the near future.
Firstly, although China appears to be a capitalist nation that allows its people to own private property and establishes banks, the markets are still incapable of determining the allocation of capital. Thus, according to Friedman (2009), “between Asian systems of family and social ties and the communist systems of political relationships, loans have been given out for a host of reasons, none of them having much to do with the merits of the business” (p. 80). As a result, a number of loans rounding up to billions of dollars have gone bad. Secondly, the Chinese system of profitless exports takes a huge toll on its economic engine. Thirdly, although the economic growth of China is rapid, it is far from being profitable or sustainable. The basic principles of economics support the argument that such growth rates as China has had in the last couple of decades are impossible to sustain, which means that the country is finally reaching its limit.
Although it might be argued that the Chinese economic situation is purely a matter of concern for China or possibly the region of Southeast Asia, yet this is not true. In case of the collapse of China’s economy, every single nation will suffer from the impact the freefall is going to have. Apart from that, the action China currently takes to battle the slowdown of its economy is producing tangible and immediate effects at this very moment. This policy briefing memo is going to demonstrate the nuances surrounding China’s possible collapse and its impact on the United States.
The U.S. is an obvious choice as China’s primary adversary and not a close member as if to present the best-case scenario, which is likely to be a lot worse for nations poorer and more dependable on the Chinese economy. Apart from China’s role in foreign trade, its direct investments in the U.S. economy and infrastructure raise the alarm regarding the potential collapse. Although there are various scenarios as to what China would do to manage its economic crisis, it is likely that it will dump its Treasury holdings, which can produce fearsome outcomes for the U.S. as China holds a major part of the Treasury debt. Furthermore, the Chinese economic collapse is likely to cause the stock market to crash.
Apart from speculations, it is crucial to examine real-life policies of the Chinese government to prevent the collapse, which it has already implemented. Firstly, it is evident that China has become much more aggressive in its foreign policy agenda. Secondly, the country tries to target the total amount of credit, although its efforts to tightening loan policies have been rather questionable. Lastly, as China tries to buy itself more time to initiate proper governmental changes and economic reforms, President Xi Jinping has articulated “the Chinese dream” and reinforced the notion of Chinese expansionism. Thus, neighboring states face a threat of being consumed by China in its effort to attain more resources and skilled labor, in particular. One of the courses of action includes the ESCAP’s monitoring activities of China’s expansion attempts. Another approach is through transatlantic cooperation to secure the borders of China’s neighbors. Moreover, the UN Secretariat can initiate discussions surrounding the economic independence of the members of the global community so that countries rely on China less.
Despite the apparent intention of the UN to maintain global peace, China may regard the cooperative efforts of the organization as hostile and even threatening. Thus, it is likely that the Chinese government decides to take a more aggressive approach and possibly are part of military confrontation, which is surely something to avoid at all costs. In addition, the country may expand its worker camps, which essentially enslave enemies of state and strip them of any rights turning these people into free labor.
Belsie, Laurent. “Official Statistics Overstate China’s Growth Rate”. National Bureau of Economic Research. 2019. Web.
Friedman, George. The Next 100 Years: a Forecast for the 21st Century. New York: Doubleday, 2009.
The World Bank. “The World Bank in China: Overview.” 2021. Web.