Is China going to collapse soon like the Soviet Union?
Is China going to collapse soon like the Soviet Union?
Just the wrong analogy
Is China going to collapse soon? Nothing’s impossible of course, although I think the probability of this is roughly the same as predicting that the United States of America will collapse soon, i.e. close to nil.
But if for some reason China does collapse in the next few years, I can say with absolute certainty that it will not happen in an even remotely similar way to the collapse of the Soviet Union. The reason is simple: the China of today and the Soviet Union in its twilight years are so different, they are almost polar opposites.
If there’s a single misconception I’d like to clear up about China, this is it: If there is a single prevailing Western misconception about China which you could change, what would it be?
Two major political/economic events brought the Soviet Union to its knees in the 1980s. First, they could not keep up with the United States in the global arms race. In an attempt to keep up with America, the Soviet Union was spending upwards of 15 to 17% of GNP on military expenditures. Second, oil and commodity prices collapsed in the 1980s and the Soviet economy was extremely dependent on its oil and minerals. Fiscal revenue plummeted and the State could no longer hold the Union together.
Looking at these two areas from China’s perspective, the situation couldn’t be more different. While the Soviet Union was (and Russia continues to be) a huge exporter of oil and other commodities, China is the second largest oil importer (likely soon to surpass the United States) and also imports vast quantities of iron ore. The recent collapse in oil and commodity prices is actually helping China.
Turning our attention to military spending, for all the hullabaloo that China gets over its rising military budget, it spends only 2.1% of GDP on military expenditures, which is significantly lower than Israel (5.2%), the United States (3.5%), Singapore (3.2%) and even India (2.4%). In fact, cutting its military budget in the early 1980s was the largest contributor (alongside agricultural reforms) to jump-starting China’s last thirty years of economic reform — and this is rarely talked about.
Back to the Soviet Union, while collapsing oil prices and losing the arms race (and getting bogged down in Afghanistan) were the proximate causes of its collapse, the fundamental cause was that its centrally planned economy was a mess. Outside of its military and commodities industries, there was probably not a single Soviet company that could compete outside of the Soviet Union and Communist bloc states. Because it had such a weak economy, Soviet Union could not keep up with the United States in the arms race -- which was a vicious cycle as rising military expenditures diverted an increasing share of the economy. This weak economy was exposed when the tide of high oil and commodity prices of the 70s fell away. A weak economy was the fundamental reason why the Soviet Union eventually collapsed. Central planning and control over the whole economy simply doesn’t work in the modern era.
Again, the irony of the China-as-the-next-Soviet-Union false analogy is that the two couldn’t be more different. China has succeeded the last three plus decades precisely because it has gradually weaned itself off its central planning legacy, to the point where direct state controlled assets account for less than a quarter of the economy today after accounting for effectively 100% of the economy 35 years ago.
Maybe China was at risk of following the path of the Soviet Union path to collapse forty years ago, but good fortune intervened and leadership switched from ideology to pragmatism, leading them down a completely different path. They’ve got other challenges to tackle, but these challenges are completely different from the ones that the Soviet Union faced in the 1980s.
This was originally published on Quora in December 2015.