Potential Impact of a Collapse in the Chinese Economy

China has been experiencing a level of civil unrest that is unprecedented in recent history. For almost three years, the country has been under strict lockdown measures to control the spread of an illness that the Chinese population is starting to realize might not be as bad as the measures taken to avoid it. Families have been separated, and people’s apartment doors have been welded shut. People are flocking to the streets to protest these harsh lockdown measures, demanding direct political change at the highest levels of government. This most recent unrest is just the latest in a long line of bad news stories coming from the second largest economy in the world, an economy governed by leaders that the people have no direct say over.

Civil demonstrations protesting lockdown restrictions are nothing new, but within mainland China, it’s a little bit different. These protests are demanding direct political change at the highest levels of government, and they don’t seem to be showing any sign of slowing. This all came before the government effectively reversed its covert policy overnight and opened the country up to a wave of infection that is happening all at once, with reports of as many as 37 million people a day catching COVID-19 and forcing entire cities back into lockdown.

Now, to be clear, the chance of an outright revolution is incredibly small despite what some outlets might present. As we’ve explored multiple times for foreign videos that we make covering China, that’s probably a good thing. Despite the understandable animosity we as outsiders might feel towards China, nobody should want the economy to collapse through something like a violent revolution or social breakdown. Altruistically, we shouldn’t want this because the current system, as problematic as it is, still supports hundreds of millions of extremely economically vulnerable people. Any type of widespread disruption in an economy that is large and still mostly poor, like China, would cause untold human suffering among the people that have no say in the actions of their own leadership. Even if we are being entirely selfish, one of the very reasons we pay so much attention to China is because we are dependent on it. It buys a lot of our raw materials, invests into a lot of our economies, produces a large share of consumer items that we enjoy, and the equipment that we rely on to run our own economies.

With all of the instability in the country at the moment, maybe it’s not a bad time to try and answer some important questions. First and foremost, what effect would a Chinese economic collapse have on the global economy? What are the most productive ways to minimize the impact that this situation could have on our own economies? And finally, could this unfortunate situation actually be a net positive to certain countries around the world?

The Collapse of the Soviet Union

To answer these questions, we can look back at the collapse of the Soviet Union. The Soviet Union was once the second largest economy in the world. It was a heavily industrialized state with authoritarian leadership that eventually collapsed, not in small part due to civil unrest, economic stagnation, and a series of large-scale disasters. The impact of the Soviet system falling apart basically overnight threw the member nations of the Union into almost total anarchy as they had to reinvent a system of government from the ground up. The country is directly dependent on the USSR also suffered, but most nations outside of Soviet influence were just fine.

By 1991, the Soviet Union was either the third or fourth largest economy in the world, behind the USA, Japan, and potentially West Germany. The reason we can’t be certain if it was the third or fourth largest economy in the world at the time of its collapse is that record-keeping in the Union was so corrupted and unreliable that institutions like the IMF and the World Bank could only be confident.

Additionally, the Chinese government has been working to reduce its dependence on foreign trade by focusing on domestic consumption and developing its own industries. However, despite this shift in strategy, China still remains a major player in the global economy and any significant disruption to its economy would have widespread implications.

One of the biggest concerns with a collapse in the Chinese economy is the impact it would have on other countries that rely on China for exports and investment. Many countries, particularly in Asia, have become reliant on China’s economic growth, with some even being referred to as “China’s backyards”. A collapse in the Chinese economy could lead to a reduction in demand for exports from these countries, causing their economies to suffer.

Another concern is the potential for social unrest and political instability in China in the event of an economic collapse. The Chinese Communist Party has maintained a tight grip on power through economic growth and the promise of a better future for its citizens. A collapse in the economy could lead to mass unemployment, social unrest, and a loss of faith in the government, which could in turn lead to political instability.

However, it’s worth noting that a collapse in the Chinese economy is not inevitable. While there are certainly challenges facing the Chinese economy, including an aging population and a debt problem, the Chinese government has proven adept at managing its economy and has implemented a number of reforms aimed at addressing these issues. It’s also worth noting that the Chinese economy is incredibly diverse and includes a wide range of industries, many of which are performing well.

In terms of how other countries could respond to a collapse in the Chinese economy, there are a number of possibilities. One option would be for countries to focus on diversifying their own economies and reducing their dependence on China. This could involve investing in new industries, strengthening domestic supply chains, and developing new trade relationships with other countries.

Another option would be for countries to work together to support the global economy in the event of a collapse in China. This could involve providing aid to countries affected by the collapse, implementing policies to stimulate economic growth, and encouraging investment in new industries.

Ultimately, it’s difficult to predict exactly what the impact of a collapse in the Chinese economy would be. However, it’s clear that such an event would have far-reaching implications for the global economy and would require a coordinated response from governments and businesses around the world.

In conclusion, the possibility of a collapse in the Chinese economy is a concerning issue that deserves serious attention. While a collapse is not inevitable, it’s important for countries to be prepared for the potential consequences and to take steps to minimize the impact. This could involve diversifying their own economies, working together to support the global economy, and implementing policies to address the underlying issues facing the Chinese economy. By taking these steps, we can help ensure that the global economy remains stable and resilient in the face of potential challenges.