Chinese President Xi Jinping (Image: AAP/Reuters/Peter Cziborra)

Things are looking bad for China, or for its ruling elite, according to Time magazine. “Communism will collapse in China,” says staff writer Bruce Nelan, confidently, going on: “China cannot grow into an industrial giant in the 21st century. Its population is too large and its gross domestic product too small.”

Say what?

“([GDP] is expected to reach only $900 per capita by the year 2000.)”

Ah yes, that makes sense. Nelan’s assessment is from 1992, an ur-text hanging round on the World Wide Web, to remind us that rumours and hopes of post-Mao China’s demise have a long history. The “doomed China” routine has been revived with the Middle Kingdom’s current troubles which, it must be said, are formidable. President Xi Jinping’s determination to impose a zero-COVID goal is playing havoc with the economy and urban social life. Massive droughts, part of the global drought, are interrupting food supply.

But the greatest threat is the real estate bubble — and it’s bursting. “Bubble” doesn’t do it justice. Building and buying property has become a vast repository for Chinese investment — from households to major banks. Vastly overextended, it is now coming down, quite literally, with thousands of half-finished towers being demolished by developer Evergrande to limit ongoing costs and whole sections of cities being dynamited.

These problems come at the same time as the Chinese Communist Party is returning to a more explicitly totalitarian style of government, from the authoritarian style that held sway from the 1990s to about 2014. Indeed, much of the doom-mongering rests on this transition, and on the proposition that China is entering a decadence, in which the substantial power that Xi has gathered to himself has started to corrupt party processes, leading to a totalitarian spiral.

There’s a lot of tut-tutting and told-you-sos about China’s rocketing to world leadership, which caught the Western foreign policy establishment by surprise in the 2000s. Well, maybe they’ll get a win this time. Maybe China’s process of guided hyper-capitalism and increasing state control will deliver both an uncontrollable bust after the boom and a government incapable of response.

But it’s worth considering the alternative: that China’s current system is not a repeat of the final years of the USSR — currently being brought back to mind, in which an inefficient state had boxed itself into a corner — but a state which has learnt from the errors of the 20th century and incorporated new features into its governing style.

Should these prove sufficient to avoid earlier traps, then China is in a better position to avoid the problems which are facing the Western part of the global economy.

The Chinese government certainly has some challenges on its hands. While its earlier phase of post-Mao development depended on becoming the workshop to the world, mostly of consumer goods, its more recent phase was based on inward reinvestment in real estate. Property development is sugar for contemporary economies. It’s actually cheap and fast to build apartment towers with modern slab-tilt construction — and China is leaping ahead with 3D building printing — but it looks earth-shattering, whole cities rising like topsy.

In reality, it takes a lot more time and money to create a mid-sized factory of complex manufacture, so investment will flow towards property if it’s on offer, and if there’s a demand. Until recently, that has been vast in China, and it is still substantial, with Chinese families holding high savings rate, and oriented towards property ownership.

China has an 80% home ownership rate (mostly apartments or cheap rural property), and a 20% second-property ownership rate, both higher than anywhere in the West. The boom has been fuelled by regional and city government investment, which has led to many of the problems, since it is often “off the books” of private and public debt calculations, oversupply and overextension of developer debt has thundered through the whole economy in a way that was to be expected but was cheerfully ignored.

The process has been analogous to the first stages of the US subprime crisis that led to the crash of 2008. But only up to a point.

The 2008 crash occurred because millions of bad mortgages had been used to back mortgage bonds, and collateralised debt obligations (invented bonds, which tracked mortgage bonds), by investment banks — who also sold “credit default swaps”, insurance that paid out hugely if such instruments crashed. The main investors were European banks that had not twigged to US deregulation ensuring that its banks could brazenly lie without penalty, and thus piled into these high-return instruments.

When the time came, in mid-2008, to treat the whole sector as broke and use state power to undergird the system, it was found that both the legislative power and the political scope was lacking.

China may well have nothing like these problems, and the projection of 2008 on to 2022 may be a result of the residual misunderstanding of what the Chinese system is. Though its banks are heavily exposed to property investment, their instruments are far simpler, and state control is tighter.

The Chinese government can do what the US government couldn’t in 2008: force the banks to take a huge haircut on property investment, guarantee mortgages, let major developers restructure, extract the bad assets into contained banking units, limit impact on suppliers and small businesses with credit extension, and power on. It’ll be a hit, but nothing like what hit the West. The only caveat to this is what I’ll call possibility X, and return to.

The China doomsayers tend to channel two contradictory discourses, and often flit between them. In one, China’s one-party state will be so sclerotic that it will make it impossible for Chinese capitalism to correct itself, with the necessary liquidation of assets, the agility of capitalism stifled. Another says China is in deep trouble because it overestimated the capacity a state has to control capitalism’s boom-bust cycle. In this telling, nothing the state can do will stop a vast crash.

What’s worth considering is a third possibility: that China’s system is not your grandma’s communist totalitarianism. The sclerotic situation of the 1970s-80s USSR which Gorbachev inherited, in which the whole system was silted up with hoarded materials, lack of market signals, cooked stats etc, is something the CCP has learnt from.

The most persuasive critique of the Soviet system was a combination of Popper’s argument, that a closed society will reward the supply of untrue but confirming situation reports from the periphery to the centre; and Hayek and Robinson’s “millions” argument, which held that it was structurally impossible for a planned economy to steer efficiently, since the time lag between periphery-to-centre information coming in, and command decisions going out, would always ensure that decisions related to a situation now in the past. Eventually, by recursion, every decision and command would be wrong.

The China-disaster-wonks read Popper and Hayek in their graduate seminars, and not much since. They haven’t worked out that the CCP read Popper and Hayek too, and incorporated that, and everything else, into its structuring of what is best describe as a command state capitalist economy, with a contained market sector, and post-capitalist/proto-command socialist features. It looks better in Mandarin.

That would suggest that, even with the political and cultural tightening the party is undertaking, its capacity to respond to these challenges will be better and more efficient than the West, because it includes the feedback responses of a Western society, while eschewing the problems of party electoralism, the capture of the state by sectional interests.

The caveat to that would be what one might call “hard Popperism”: that gathering single-party, single- leader command will always distort information supply.

Oh, and possibility X? That would be, er, Marx — the bits that the still unquestionably Marxist CCP has disregarded. That’s the idea that capitalism will always get off the leash, transform any system to a commodity one, and crash values repeatedly. If that’s the case, China will be unable to contain the contagion.

Well, we’ll see. But one needs a bit better guide than endlessly recycling the class of 1992. Back then, Nelan was most worried about something called “Japan” — a term whose meaning contemporary scholars are unable to determine.