Weakness is temporary and not regime-ending.

Growth slows, risks abound, but economic and financial collapse can be avoided

China’s economic performance has been stellar over the past three decades, with remarkable and persistent high growth that lifted the economy from low-income to upper-middle-income status. Measured at market exchange rates, China’s GDP was $18.3 trillion in 2022, 73 percent of the GDP of the United States and 10 times more than the 7 percent of US GDP it registered in 1990. China’s per capita income is now roughly $13,000, approximately 17 percent of US per capita income—compared with less than 2 percent in 1990. Over the past decade and a half, China has been the main driver of the world’s economic growth, accounting for 35 percent of global nominal GDP growth, while the United States accounted for 27 percent.

China accomplished this without many attributes that economists have identified as being crucial for growth—such as a well-functioning financial system, a strong institutional framework, a market-oriented economy, and a democratic and open system of government. Until the COVID-19 pandemic rocked it back on its heels, the Chinese economy powered through periods of domestic and global turmoil seemingly unscathed.

But detractors have long argued that China’s economic collapse was imminent, pointing to numerous fragilities. The country’s growth has been powered by investment in physical capital, especially real estate, that has been financed by an inefficient banking system. With domestic debt levels high and rising, the property market unraveling, and the labor force shrinking, some analysts say the day of reckoning has finally arrived.

They are likely wrong. Unbalanced reforms that have kept the institutional structure weak, a schizophrenic approach to the role of the market versus that of the state, and strains in financial and property markets could result in significant volatility in coming years. But none of this means a financial or economic collapse is inevitable.