Economic crisis in China?

The ASEAN summit may have a lot on their agenda but I think their primary concern is the relationship between ASEAN and China. Aside from the aggressive incursions in the South China Sea, many if not most of the ASEAN countries have become quite dependent on the Chinese economy. In a recent article, Michael Froman, president of the US Council on Foreign Relations, said that the next global economic crisis could be caused by China. Today, the Chinese economy is the second largest in the world, next to the United States. But there are definite signs that the Chinese economy is heading towards a slowdown.

The Chinese’s remarkable economic growth over the past several decades has been made possible by the largest trade surplus in recorded history, which in 2025 reached $1.2 trillion. This was caused by the eagerness of other economies to import low-cost manufactured goods from China. But this has also caused economic problems in almost all of the countries that have become major importers of China. This has led to manufacturing sectors closing down.

China accounts for roughly 30 percent of global industrial production and by 2030, it is expected to reach 45 percent. These figures are from a 2024 UN report.

The Organization for Economic Growth and Development estimates that 60 percent of China’s gains in global manufacturing has been driven by government subsidies. Froman states that nearly 30 percent of Chinese industrial firms actually operate at a loss.

Of course, China’s economy can change course and avoid this crisis. The main change will have to be a shift in its economic-growth strategy from dependence on foreign markets to increased reliance on domestic consumption.

Presently, the Chinese Communist Party is undertaking debates on whether to embrace the necessary economic reforms to avert this crisis. However, it is noticeable that many other countries, especially in Europe and North America, are already trying to prevent the continuous flow of Chinese exports. These countries are motivated by the need to protect their own domestic industries.

During the early part of this century, they were not overly concerned with Chinese lower-value manufactured products. Recently, China has begun to enter and compete in high-value manufacturing products like semiconductors and electric vehicles. This is a direct threat to those countries that have their own high-value manufacturing industries. The world is now seeing protectionism even in countries which used to be advocates of free trade.

Froman writes: “The EU has long been more ideologically committed than the United States to multilateralism and free trade, at least rhetorically as a key element of its project of integration. But after years of trying to triangulate between the United States and China, it is belatedly following Washington’s lead in erecting trade barriers to Chinese exports.”

I expect that even with the results of the US midterm elections with the triumph of the Democratic Party, this policy of protectionism in the United States will be supported by the Democratic Party. After all, this political party is heavily dependent on the support of labor unions whose main advocacy is the protection of job security for their labor union members.

Major importing economies in Europe, North America and East Asia have already started increasing tariffs, local content requirements and exclusions based on national security. If this becomes a coordinated effort and there is an increase of these types of import restrictions, this could affect China because there will be a sudden decrease in their export markets.

The export dependence of China is also unsustainable. According to the International Monetary Fund, over the first two months of 2026, China’s trade surplus grew by more than 20 percent while the global economy grew only by 3.1 percent. Obviously, this global demand is not rising fast enough to absorb Chinese exports.

Froman writes in his report: “Eventually, the market for new factories in China will run dry as did the market for property. China’s trade surplus could in effect collapse on itself.”

For example, economists are projecting that the global market will reach 90 million cars. China already has the capacity to produce 55 million cars or 60 percent of the global market. However, China is continuing to build auto manufacturing facilities. At some point, either the global auto industry will have to close down or China will have to reduce its manufacturing capacity or other countries will have to close some of their manufacturing capacity. Either way, this excess capacity for car manufacturing will create conditions for a crisis.

If the world faces this Chinese economy crisis, China must work with other countries – especially the United States, western Europe and East Asia – to avoid a global depression. Unfortunately, there is no sign at present of this global cooperation working at this moment. All the signs point to the global economy cooperating only after the crisis has occurred.

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