The title subject is a very tough question to answer, particularly when China is in the midst of the U.S. initiated trade war. The tariff war has been going on over 18 months with obvious signs that the war is stuck and extended beyond trade to technology competition and financial arena involving debt and currency issues. In addition, the Hong Kong (HK) unrest, seemingly triggered by a simple legitimate extradition law revision, has further been agitated and fueled by HK elites/media and foreign influence. HK is also used by the U.S. to exert pressure on China, mostly through media, to accept the U.S. ‘trade’ demands. HK as a world financial center is too important to China as well as to the World to get messed up. Understandably, China has been extremely patient and careful in handling the HK Crisis. The U.S. has also been constrained so not to push HK over the cliff, which, if happened, will likely bring down the world economy through a domino effect.
As the stock market is swaying wildly up and down following news tidbits and tweets related to trade war, HK protest activities, and other economic reports, the main question on Wall-Streeters and economists mind is, ‘Will China’s Economy Collapse into a World Financial Crisis?’. The health of China’s economy has been begging for an answer since 1990. Amazingly, many Economics authorities have predicted that China’s economy would crash soon for the past 30 years. In this article, I choose to search on the Internet the articles addressing China’s Economy and listing them chronologically below from 1990 to 2019 which predicted the collapse of China’s economy. Since the Chinese Economy has not collapsed yet, I think these wrong predictions ought to give us information and answer - why the Chinese Economy has strived for three decades without failing?
The following list contains the articles predicting the collapse of China’s Economy from 1990 to 2019:
1990, China's economy has come to a halt. The Economist
1996, China’s Economy has come to a halt. The Economist
1998, China's Economy will face a hard landing. The Economist
1999, China's Economy Entering a Dangerous Period of Sluggish Growth. The Economist
2000, China Currency Move Nails Hard Landing Risk Coffin. Chicago Tribune 2012 Reuter Nick Edwards
2001, A Hard Landing in China. Wilbanks Smith & Thomas
2003, Banking Crisis Imperils China. New York Times Opinion 06/19/2013
2003, How to Find a Soft Landing if China.. KWR International
2004, The Great Fall of China? The Economist
2005, The Risk of a Hard Landing in China. Nouriel Roubini
2005, Hard Landing Heresy - Economics Focus. The Economist https://www.economist.com/finance-and-economics/2005/09/08/hard-landing-heresy
2006, Can China Achieve a Soft Landing? International Economy
2007, Is China’s Economy Overheating? Can China Avoid a Hard Landing? TIME 4/19/2007
2008, Hard Landing in China? Forbes 11/5/2008
2009, China's Hard Landing. China must find a way to recover. Fortune 3/5/2009
2010, Hard Landing Coming in China. Nouriel Roubini
2011, Why A Chinese Hard Landing May Be Closer Than You Think. Business Insider 7/14/’11 9/12/’12
2011, Dismantling the China Hard Landing Narrative. Forbes
2012, Economic News from China: Hard Landing. American Interest
2012, Should China Be Braced Itself for a Hard Landing, The Guardian
2012, Chinese Hard Landing. Business Insider https://www.businessinsider.com/chinese-hard-landing-2012-9
2013, A Hard Landing In China. Zero Hedge
2014, A hard landing in China. CNBC https://www.cnbc.com/2014/01/31/a-hard-landing-in-china-the-risks-in-one-graphic.html
2015, Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through the Trade and Commodity Price Channels. Bank of Canada L. Gauvin
2015, Congratulations, You Got Yourself A Chinese Hard Landing. Forbes
2015, Coming down to Earth - China’s Economy The Economist
2015, Taking a Tumble - China and World’s Economy The Economist
2016, Hard Landing Looms for China. The Economist
2016,When China Stumbles The NY Times Opinion https://www.nytimes.com/2016/01/08/opinion/when-china-stumbles.html
2017, Is China's Economy Going To Crash? National Interest
2018, China's Coming Financial Meltdown. The Daily Reckoning
2019, What is Causing China’s Economy to Slow Down? Foreign Affairs
2019, If China's Economy Crashes Australia Will Be Hit Hard. The Guardian
2019 The World Is Moving Closer to Another Hard Landing. Live Mint Opinion
2019 Is China About to Cause Another Asian Economic Crisis? Real Clear Politics
Last year ended in panic for financial markets and 2019 started with uncertainty, the reason was that people were worrying about a long overdue recession which may be triggered by a crisis in 2019. Ten years after the world financial crisis in 2008, the financial market has accumulated enough excesses for correction. The trade war began in January 2018 added further concern about the world economy. The question is where will be the burst point of a financial crisis? Asia (China), EU (which country) or the U.S.? Tom Holland, a staff writer for South China Morning Post, has written an article, entitled, Look to US not China 2019 for Financial Crisis. Here’s Why.
( https://www.scmp.com/week-asia/economics/article/2181593/look-us-not-china-2019-financial-crisis-heres-why). This article is in contrast to most articles concerned with predicting China’s economic crash or hard landing. Holland argues that although the three largest economies all have debt issues, the crisis may not be triggered by EU, China but by the U.S.
EU after its debt crisis peaked in 2012, its central bank ‘pledged’ (ECB) to defend its currency no matter what. While Italy or Germany or any EU member may get into a new recession; the ECB will come to the rescue by opening the funding taps to avoid or delay the disaster until EU adopts some structural reforms of EU’s economic governance. China’s debt has risen to a dangerous point (in just 10 years her debt has soared from 150% to 250% of GDP), the slowing economic growth will reduce borrowers’ ability to service their debt. But in China, the state essentially owns and controls the banking system, thus the government officials can do whatever necessary to ensure plentiful supplies of liquidity in case of an emergency. In financial crisis, it’s the liquidity not solvency as the real issue.
Why is the next financial crisis likely to originate in the U.S.? We may look for the similarities between the 2008-9 crisis and the coming one. In 2008, it was ramped-up lending to low-credit borrowers (subprime homebuyers) and repackaged their loans and sold to greedy investors. The new crisis would be caused by American companies who took advantage of near zero interest rate to load up debt, bought back stock shares to jack up stock prices, and issued executives fat bonuses or dividends rather than investing in productive factories or assets. Over the past 10 years, the total value of US corporate bonds outstanding has tripled from ~US$2.5 trillion to US$7.5 trillion with nearly half being one grade above junk (BBB). In addition, there has also been a boom in so-called leveraged loans (loans to high-risk corporate borrowers), doubling from US$550 billion to around US$1.1 trillion. These “collateralized debt obligations” (CDO) loans have been repackaged and sold to yield-hungry investors similar to the subprime mortgages prior to 2008.
The new regulations forbid the trading houses to trade the CDOs in their own accounts. The external CDO holders (ETFs or foreign institution investors) are forbidden to own junk bonds but free to sell CDOs at any time. When the US economy slows for trade war or other reasons, the US companies will face tightening margins, unable to service their debts and some BBB-rated borrowers will get downgraded to junk status. Then the ETFs and institutional investors will rush-sell their bond holdings at fast sliding down prices. Investors become panic and US Corporate Bonds will collapse, bam, a repeat of 2008 crisis. Will China be well enough to come to rescue the world this time like in 2009? One wonders why the U.S. wants to wage trade war with China rather than collaboration?!