AuthorBelgrave, David


Author: Ann Lee

Published by: Polity Press, Cambridge, 2017, 168pp, US$45

(hb), 12.95 (pb).

China's rapid economic growth has transformed China and global trade, and is beginning to significantly reshape international relations. Averaging nearly double-digit GDP growth for three decades, China's growth has few historical precedents. A state that struggled to feed its people less than a lifetime ago has become the largest exporter and the second largest economy in the world. Today the question has become whether China can transition from a high-growth economy focused on industrial output, exports and infrastructure development to a slower-growth economy focused on services. China's economy is slowing and the next few years will be critical if China is to successfully make that transition.

Ann Lee's slim volume Will China's Economy Collapse? addresses this question. Lee is an economic commentator and former investment banker. Her book sets out to address the many criticisms of Chinese economic policy levelled by Western critics. Lee's driving argument is that China is different. The economic orthodoxies that give rise to Western criticisms of Chinese economic policy do not apply to China for a number of cultural, political or structural economic reasons.

One criticism levelled at China from the West is the indebtedness of China's numerous state-owned enterprises (SOEs). China's SOEs are major employers in heavy industry and have been criticised for inefficient over-production. Since the global financial crisis of 2008 many of these heavy industries have suffered declining demand for their goods overseas. Beijing responded by ramping up infrastructure spending and instructing state-owned banks to lend to these state-owned heavy manufacturers. The goal was to maintain production and avoid mass unemployment, but the amount of debt held by these SOEs has skyrocketed. Lee points out that privatisation would not solve the problem of shrinking revenues and large private bankruptcies would only lead to huge numbers of unemployed who would need to be supported financially. China can afford to let SOEs under-perform provided that banks raise their reserve requirements. Lee argues that the related problems of local government debt and toxic loans in the informal banking sector are being addressed and, given the central government's significant financial reserves, there is little chance of these problems causing the...

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