What's all this talk of China collapsing?

Chang offers numerous real cases of successful companies that are forced by the government to absorb an ailing SOE against its will to keep workers receiving paychecks and off the streets. Shortsighted moves like this will be the death of the party when its enterprises crumble under foreign competition after WTO rules take full effect.

The party has also been digging its own grave, Chang says, by demanding that the four state-owned banks lend to the SOEs to cover up hundreds of billions of US dollars in annual losses. These loans, not surprisingly, are never repaid, which means that the loans are, in fact subsidies, extended to SOEs from out of the savings of individual Chinese depositors. And when a bank is only recovering 10 percent on most of its loans, its amount of cash on hand for withdrawals is hazardously low, which is why a run on any of the major banks could spell the end of the party.

"In view of all these trends, growth in the future will slow, consumer prices will decline, exports will stagnate, foreign investment will fall further, and the economy will stagger. Beijing can, by decree, postpone the onset of symptoms, but eventually the laws of economics will apply. ? We are but a few years, perhaps five, from that time," Chang says.

The economic picture, as Chang paints it, is bleak and worse still because the party refuses to tackle the problem head on, especially that of WTO accession. Hu Jintao (胡錦濤), the likely next president of China, justifies Chang's fear that China is not ready to compete in the global market when he's quoted as saying, "economic development must not be achieved at the expense of ideology." If that's what the next president of China thinks, then the outlook is, indeed, not rosy.

The sections of this book that concentrate on China's financial sector make the best cases for a possible meltdown in that country, but Chang has unfortunately padded his analyses with weak tangents on the Internet, social discontent and corruption as forces that will destroy the party. And even though Chang's evidence from the finance sector is made to seem scary, it curiously doesn't dwell on China's US$220 billion in foreign reserves, US$25 billion trade surplus over the past year and double-digit industrial production growth which, together, don't exactly ring of impending disaster. Not only that, but because China's banks are state-owned and their collapse would mean the party's collapse, Chang says they won't be allowed to fail. So, why all the talk of collapse in the first place?