The Red Dream

Chapter 7China versus the United States: Comparing the Costs of Financial Crises

… high leverage leads to high risk and … can cause the outbreak of a systemic financial crisis … and even result in “tossing the people's savings into the soup.”

—Authoritative Person, Renmin ribao, September 9, 2016

The previous chapters have taken a deep dive inside China's fiscal and financial systems and shown how the country's massive debt has come about. The several years since 2016 have seen some of China's leaders and regulators, if not its political leaders, engage in an attempt to bring their finances back under control. This effort has not been helped by the emergence of a “zero tolerance” policy aimed at Covid-19, nor have the bolts of lightning from Zhongnanhai, disabling the most vibrant parts of the private economy, helped. The Headquarters has truly been bombarding much of the country seemingly without any awareness of the need for constraint. But within the bowels of the state an effort to manage what could quickly become a real financial crisis is taking place.

After the past decade of financial stimulation, China's economy has grown to be the second largest in the world, roughly two-thirds the size of the economy of the United States. The country's technological achievements have surpassed anyone's expectations. “Wolf Warriors” from the Ministry of Foreign Relations demand that the world see that China is now Number 1, while also hoping to improve their own positions in the ...