Will Global Economy Shatter If China Collapses

by Viraj Shah
 
The Chinese made a foray to the world economy with low-priced production and mass manufacturing bias. The interest of foreign venture capitalist in China and country’s growing economic and political influence in the world added another cherry to the Great Chinese Pie. However, once the 2008 financial meltdown happened, the pie is becoming smaller and the Chinese dream is coming to a troublesome end. With it, China may carry a serious risk to the global economy as well.
The Chinese debt problem
China’s debt is 250% of its current GDP and presents an explosive sign of collapse of the economy. Corporate debt in the economy is 165% of the GDP. China made investments into the fixed assets of the economy. The state-owned enterprises did the maximum effort in this case and hold a huge chunk of the corporate debt of the nation. As the export based incentives for the economy are slowing down and the returns are nearing zero domestically, the economy is gearing towards a political and social hotbed of change.

Locally, classic debts have been replaced by municipal bonds that help ease out the debt problem temporarily. The real estate market is still booming but it is largely concentrated in the cities with wealth and riches. The credit-fueled growth of the Chinese economy can come to a blazing halt anytime soon. China’s national debt is $28 trillion by conservative measures.
Trump doesn’t seem too keen
Trump has already talked about taxing Chinese products heavily and will likely carry on with his protectionism upon assuming office. This could mean severe taxation on cheap Chinese products. The US-China relationship is already under strain and the Trump foreign policy, once in action, will ask for some more bars and holds in the economic relationship of the two countries.
Broken government systems
Educational system in China is focused on marks and not application. The country is struggling with corruption and problems with public healthcare systems, education, and other government undertakings. The picture of the cities is much brighter than the rural areas but they are struggling with pollution. It is very unlikely to find out the trigger to the economic collapse of the nation. However, once triggered, the Chinese economy can fall like dominos owing to its debt and problematic exports. Hong Kong will forever be a problem for the state, as far as current situations go. The society is becoming more unstable too.
Even though the number of investors have halved in the country, the amount of investment has risen manifold. The investments are obviously eying the ‘cheap labor’ and ‘mass production’ advantages being provided by Beijing.
China and world relations
With economists now expecting a massive stock market crash in the United States, the Chinese will not remain untouched. It is expected that even Blue Chip stocks like Apple will be majorly affected by the downfall. Remember, Apple is already investing in research, wind turbines, and even taxi calling apps in China. In fact, $1 billion has been promised to the taxi calling app Didi Chuxing alone.
A US stock market crash will hamper China more by creating problems with high-end investments planned in the region. If the Chinese economy goes for a collapse, it would lead to large scale panic and even hysteria in Asia and around the world as trade relations with many countries will be affected. There could be several problems up in store. China’s economy is wrapped in mystery. The inner trouble is now coming to the surface. If China ever collapses, the results will bring out a long lasting socio-economic change in the country and would also be bringing lessons to other developing nations. To say, the global economy will not shatter because of China but it may certainly have a few hiccups before full recovery.
Conclusion:
China has been one of the fastest growing economies. Hence, if the bubble bursts then it will have ripple effects across the world.
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