In a widely publicized warning, U.S. Treasury Secretary Scott Bessent predicted a looming collapse of China’s economy—blaming it on a hard landing in real estate. It’s a bold claim. But before ringing the alarm, let’s take a closer look. While China does face serious challenges—real estate headwinds, massive local-government debt, excess capacity, rapidly aging population, and a low share of GDP going to households—these issues alone do not guarantee economic collapse.
What matters more are the underlying fundamentals. On the external side, China exports more than any country, holds the largest trade surplus globally, boasts the world’s biggest foreign-exchange reserves, and exercises strict capital controls. On the internal side, Chinese households hold ~¥160 trillion in deposits, net of loans close to ¥80 trillion—a huge buffer. State‐owned capital is dominant and central government debt remains among the lowest in the world.
Take the example of household deposits: with net savings around ¥80 trillion, China enjoys what economists call “withstanding power”. Many U.S. households simply do not have enough savings: in 2023 the Federal Reserve found 25% of American adults could not cover a $400 emergency expense. So when U.S. real-estate markets fall, second‐hand home sales can collapse. In China, despite four years of property declines and house prices halving in many places, we haven’t yet seen the crash foot-stamp. Why? Because households generally still have liquidity and aren’t forced to liquidate assets.
When analysts say “China is on the edge,” they often ignore the scale of China’s economic foundations. If you compare China’s core metrics—trade surplus, export growth, foreign reserves, household savings—very few countries rank higher.
The Problems Are Real — But Not Infallible Signals of Collapse
Yes, China has real estate woes: sales are down to 2006 levels, inventories remain elevated. And yes, local government debt (both explicit and hidden) exceeds ¥100 trillion. Industrial overcapacity and involution plague many sectors. Birth rates are dropping and aging is accelerating. The share of GDP going to households remains relatively low, fueling concerns about inequality and weak consumption.
But to interpret these as signs of impending collapse is to misunderstand the framework: look at the fundamentals, not just the symptoms. Like a company with product defects but strong cash flow and market share—yes, there are issues, but the business isn’t bankrupt. China’s economy is in that latter category: problems present, but not fatal.
Why China’s Fundamentals Still Count
- Export strength: China remains the world’s manufacturing hub with strong global demand for goods and a growing surplus.
- Foreign reserves & capital control: With over $3 trillion in reserves and capital flows tightly managed, China is less vulnerable to external shocks.
- Household savings: Massive savings provide a buffer—this is not common in developed economies.
- State capital & fiscal stability: With state-owned enterprises dominant and central fiscal debt low, China retains fiscal flexibility.
These fundamentals point to resilience rather than fragility.
A Rapid Growth Path Means Rapid Problems
Why then are problems so acute? Because China grew very fast. While Western countries took a century or more to urbanize and industrialize, China did it in ≈ 45 years. Urbanization rate jumped from ~19% in 1980 to ~67% (or more with non-hukou residents included) today—far faster than the U.S., U.K., Japan or Germany achieved in the same timeframe.
Such speed introduced structural tensions: local‐government debt soared as cities expanded aggressively; development zones proliferated and led to industrial overcapacity; massive migration reversed traditional gender ratios in rural/urban areas; birth rates collapsed as urban living conditions changed. In short, China’s leap means it now has to solve problems it didn’t yet face at slower growth phases.
The Real Estate Question: Why It’s Different in China
In the U.S., when housing falls, many homeowners must sell because they lack savings. That triggers a downward spiral. But in China, the sheer size of household savings and the fact that many homes are owner‐occupied (with limited mortgage burdens) reduce the risk of mass forced selling. So although real estate is down, a “hard landing”—where housing pulls the entire economy into crisis—is much less likely.
What’s Being Done? And What to Monitor
Chinese authorities are not idle:
- Tackling local‐government debt by limiting new projects and focusing on activating existing assets.
- Addressing industrial overcapacity and involution by directing resources into productivity and innovation, not just expansion.
- Supporting birth rates via subsidies (¥3,600/year for children under 3, medical cover for IVF, etc.). Though modest now, the policy is designed to expand gradually—test-and-learn rather than “all-in overnight.”
- Shifting policy from “supply-side” investment to “demand-side” consumption—i.e., moving resources toward households instead of purely industry.
So, you’ll likely see:
- Real estate plateauing or modest recovery by ~2026
- Local‐government debt showing a turning point (with less new issuance)
- Birth‐rate decline slowing
- Household consumption slowly strengthening
How Does the U.S. Fit In?
The U.S. economy has its own strengths:
- Interest‐rate flexibility (Fed’s rate around 4.25% at present)
- Dollar dominance (untied printing press)
- Global military/political reach supporting trade and reserve status
So while the U.S. has problems too, its fundamentals give it a different kind of resilience. Yet that doesn’t mean nothing will hurt: social cohesion, inequality and structural stagnation are serious risks for the U.S.
Verdict: Will Yellen’s Prediction Come True?
No, not in its extreme form. China’s economy is not immune to slowdown, and the “collapse” scenario she painted is unfounded given the underlying metrics. Expect growth to moderate (maybe 5% or so), but not to crash. The experience for ordinary people, however, might feel tough compared to past booms.
For the U.S., the good news is fewer immediate crises—but the bad news is structural fragility that could bite harder in the long run.
In short: China’s economy is still strong but evolving; treating its current slowdown as a fatal crash is a misread of the fundamentals.
References
- “China’s Economy: Basis still solid, advantages many, resilience strong, potential large,” Statement from CPC Politburo Meeting, 2025.
- U.S. Federal Reserve Data, “Quarterly Report on Household Debt and Credit,” 2023.
- Yangcheng Evening News: “Why Mobile Payments Have Not Taken Off in the West?” Dec. 2019. (Note: included here as analogous citation style.)
