Economics Working Paper 18104
Abstract: Since the dissolution of the Soviet Union, China’s economic and political stabilities have been repeatedly called into question. In this paper, we review long-lasting debates as to whether or not China will collapse and explain why we believe China is not going to collapse economically or politically. Our main argument is that Chinese authorities have applied a gradual anti-crisis approach to reform since 1978. This approach means that the Chinese government has both pursued modest reform measures and reacted quickly to internal and external shocks. Structurally speaking, the party and Chinese central government’s control over social resources represents an implicit guarantee against potential collapses. This paper then studies current risks of a sudden growth collapse in the form of a debt crisis, a housing bubble bust, and political disintegration, and lays forth why these events are not likely to happen and spark a major Chinese collapse in the near future. We also identify new instabilities in China’s economic and political system and discuss how the current gradual anti-crisis approach to reform can be upgraded to deal with these problems.