Book SummaryThe Coming Collapse of China, by Gordon G. Chang

1-Page Summary1-Page Book Summary of The Coming Collapse of China

The foundation of China's economy is neither stable nor strong.

Chang suggests that the instability of China's financial system, which is on the brink of collapse, stems from the ineffectiveness of state-controlled enterprises, the looming insolvency of its banking sector, and pervasive deflation. The Communist Party's dual objectives to preserve doctrinal integrity and manage societal stability, while also striving to boost economic development, intensify these challenges.

The deficiencies in businesses operated by the state suggest deeper economic volatility.

Chang highlights that the inherent shortcomings present within state-owned enterprises reflect wider systemic economic difficulties facing China. He argues that these enterprises, born out of a Stalinist model and nurtured under the visionary schemes of Mao Zedong, are inherently inefficient, non-competitive, and dependent on government financial support, thus weighing down the nation's economy.

The hesitation of state-owned enterprises in adjusting their operations is rooted in their fundamental role as distributors of social welfare.

Chang posits that the inflexibility of state-run enterprises stems from their historical responsibility for providing social support services. During the period of Mao Zedong's leadership, the factories were not just centers for manufacturing but also provided their workers with comprehensive community services, including housing, healthcare, education, and essential items such as toothpaste and toilet paper. Employees agreed to lower wages in exchange for job stability and a comprehensive safety net, which led to the creation of self-sufficient industrial communities, or corporate towns, altering the goals of these state-controlled enterprises and hindering their ability to adapt to changes in the global market.

Chang highlights Sinopec, a conglomerate that encompasses diverse segments of the petroleum sector, to emphasize his point. Sinopec runs production plants that solely create products like toothpaste and facial tissues to cater to the needs of its refinery employees, thus perpetuating the concept of a company town. The approaches conceived in the time of Mao conflicted with modern economic methods, requiring the divestment of ancillary assets even following the reorganization of firms for stock market introduction.

Other Perspectives

• The provision of social welfare could be seen as an asset that fosters employee loyalty and productivity, which might counterbalance the hesitancy to adjust operations.
• The focus on state-run enterprises as providers of social welfare may overlook the role that local communities, families, and other social institutions played in supporting individuals during Mao's era.
• Such a system may not be sustainable in the long term, especially in a changing economic landscape where flexibility and adaptability are key to survival and growth.
• Self-sufficiency in corporate towns may have been overstated, as these communities often still relied on external resources and state support to function effectively.
• The commitment to social welfare could potentially be leveraged as a unique selling proposition in the global market, where consumers are increasingly valuing corporate social responsibility.
• The practice of providing such goods might be a cultural or traditional aspect of business in certain regions, and not necessarily a sign of inflexibility or a hindrance to adapting to global market changes.
• Sinopec's adherence to the company town concept could be part of a broader diversification strategy, where the provision of non-petroleum products and services acts as a hedge against volatility in the global oil market.
• Divestment of ancillary assets is not always necessary for success in the stock market; some investors may value the diversified nature of SOEs and their role in social welfare.

The stability of the banking system is further threatened as the central government's initiatives to strengthen state enterprises involve directing bank loans to them.

Chang contends that the approach taken by the central government to prop up loss-making State-Owned Enterprises through continuous bank loans is misguided, as it simply transfers the financial burden to the banking system from the government's treasury. By forcing banks to lend to SOEs instead of providing direct subsidies, the government created a system where these enterprises operate under a virtually consequence-free environment.

Gordon G. Chang points out the difficulties encountered by a major steel manufacturer, Anshan Iron & Steel, which include the use of obsolete equipment and the problem of excessive workforce. Despite its clear lack of profitability, Angang continues to secure new loans to settle existing debts, defying sound financial practices and creating a precarious situation of indebtedness that necessitates intervention by the lenders.

Practical Tips

• Consider investing in community-supported agriculture (CSA) shares or local business bonds. This strategy allows you to support your local economy directly, bypassing traditional banking systems. Your investment helps fund local farmers or entrepreneurs, which can reduce their reliance on bank loans and, in turn, the financial burden on the banking system.
• Consider the principle of accountability by volunteering to serve on a committee or board that oversees a local organization or project. In this role, actively advocate for transparent reporting and accountability measures. Your involvement will provide insight into how these practices can influence the success and efficiency of an organization.
• You can evaluate your personal assets to identify what's outdated or underused, similar to how a company assesses its equipment. Start by listing all the items you own and categorize them based on their frequency of use and current condition. For items that are rarely used or...

The Coming Collapse of China Summary The incompatibility between the Communist Party's ideals and the economic changes being implemented.

Chang suggests that the economic challenges in China arise from the conflict between the Communist Party's adherence to socialist ideals and the requirements brought about by market-oriented reform initiatives. The party, unwavering in its historical mission and entrenched in a hierarchy that confers ultimate power, continuously strives to align its ideological beliefs with the changing requirements of the financial terrain.

The Party's attempts to harmonize socialist principles with the mechanisms of a capitalist market have not succeeded.

Chang depicts the attempts by the Party to reconcile socialist beliefs with market economy tenets as an ultimately fruitless pursuit, bordering on self-delusion. He argues that the Party's commitment to outdated concepts like "socialized public ownership" and the "primary stage of socialism" essentially acts as a rationale for its departure from a strictly socialist structure, while still enabling it to uphold its doctrinal dominance.

The concept of "socialized public ownership" is often used to rationalize the process of privatization.

Chang delves into how the allocation of shares in state-controlled firms is depicted as a form...

The Coming Collapse of China Summary The Party's attempts to maintain its grip on power are occurring in the midst of rising social unrest.

Chang posits that the ruling Party is encountering difficulties in maintaining control due to growing social unrest, which is intensified by economic struggles, rising unemployment, and pervasive corruption within the ranks of government officials. He argues that the regime's strategy of suppressing dissent, especially through silencing and managing critics, coupled with its reliance on empty slogans and propaganda campaigns, is exacerbating the problem, eroding its legitimacy, and pushing the country toward a pivotal point.

The primary method utilized by the Party to deal with dissent is through the enforcement of suppression.

Chang describes how the ruling Party's main reaction to dissent, be it political, religious, ethnic, or complaints regarding corruption, is to suppress it. He argues that the intrinsic nature of the Party as an authoritarian regime, along with its unyielding drive to retain control, forces it to suppress any opposition.

The administration's reluctance to tolerate public disagreement and its obsession with preserving social stability.

Chang perceives the Party's forceful quelling of opposition and its persistent focus on "stability" as...

The Coming Collapse of China Summary Conforming to the World Trade Organization's standards and maintaining stride with the rapid progression of technology present considerable obstacles for the Party's governance.

Chang suggests that the rapid progress in technology, along with the challenges of integrating into the World Trade Organization, are putting the Party's governance skills to a rigorous test, particularly in its efforts to drive the country's economic growth. Gordon G. Chang contends that the World Trade Organization's trade mandates for transparency and competition will expose flaws in China's financial system, potentially leading to increased social unrest and undermining the Communist Party's grip on power. The advancement in technology and digital domains presents considerable challenges for the Party as it strives to control information dissemination and effectively quash dissenting opinions.

China's accession to the World Trade Organization exposed fundamental flaws within its system.

Chang contends that China's entry into the World Trade Organization, while commonly perceived as a move towards global economic integration, will instead expose the frailties and vulnerabilities of its state-run economy, leading to a period of economic and social turmoil that has the potential to undermine the Communist Party's grip on power. Chang posits that China's ruling class has...