Fear of the global economic consequences of the economic collapse of communist China led to a worldwide refusal to acknowledge that the collapse began at least a decade ago.
Foreign investors and governments embraced Beijing’s official claims and figures rather than accepting the reality of decline.
But the collapse has already happened to a large extent, although there is more to come. The impact of the collapse has already been substantially absorbed by the world economies, even though the major impact—on the mainland Chinese domestic economy and well-being—is still to reach its climax.
That will have a different set of consequences.
The major question for external analysts is the extent to which the implosion of the Chinese economy will affect global markets and, ultimately, the worldwide strategic architecture. Such considerations need to take into account the fact that China retains a series of core capabilities that do not depend on new foreign investment or inward technology transfer.
These seem likely to be the drivers of Chinese employment and wealth generation in the immediate decade, assuming the social consequences of the current free-fall in the overall economy do not destroy governance through spontaneous uprisings from a society that has a growing number robbed of its wealth and even daily sustenance.
So, in this argument, China may have led the world economy into a relatively soft landing, albeit as yet incomplete. What does it mean?
Assuming China can maintain a degree of stability through the crisis, at least in key areas, it should be expected to continue in its role as the major exporter of processed steel or steel rebar. Reuters analyst Clyde Russell reported on Jan. 29 that China—which buys some 70 percent of the global seaborne iron ore—was on track to continue buying heavily, even increasing its buying. This means that prices for iron ore could remain for the time being, at about or close to the $130 per ton now being generated. It could return to 2021 prices of about $160. China’s iron ore imports surged during 2023 despite the collapse of the internal construction industry.
China imports more than 1 billion metric tons of iron ore annually and mines only 86.3 million metric tons domestically. As Statista.com noted: “Despite iron ore mining cutbacks in China and fluctuating prices, the price of steel, which is made from iron ore, has remained stable.
“China has remained the world’s largest crude steel producer. Among the 20 leading steelmakers worldwide, nine are from China. As the largest crude steel producer in the world, Baowu Steel Group is state-owned and is the largest steel company in China. In 2021, Baowu Steel Group generated a revenue of over 972 billion yuan.”
The real future for the stability of this sector, for China and its suppliers, is the continued global demand for steel. It is clear that China’s demand for iron ore is dictated not by its domestic economic growth but by the global market. This is reinforced by the reality that there is a continued reluctance in the West to build environmentally unfriendly ore processing plants.
The story can be repeated for other minerals imported for processing and re-export by China. Despite attempts to overcome dependence on China in the area of processing rare earth minerals, the reality is that the Western states are yet to commit to major (and environmentally difficult) processing. Thus, dependence on China seems likely to continue.
The key to economic growth in the mineral supplier states lies in the significant improvement in the efficiency of extraction and bulk handling of ores, thus dramatically increasing profitability per ton regardless of whether overall export gross volumes grow each year. In this regard, miners in Australia and Canada, in particular, have helped stabilize their national economies and have also profited from the creation of next-generation mining software.
China’s heavy industries—many of which are state-owned enterprises—remain in a position to also improve their domination of markets in fertilizers (mostly from imported fossil fuels) and finished steel products, including defense items.
But all of that depends on how much the Chinese Communist Party (CCP) can retain control of the internal population. That means a process of reversing the rapid and unstable population buildup in urban areas, particularly in the past two decades or so. Urbanization levels in China are now at about 66.2 percent (much lower than in the United States, for example, but in 1953, it was only 13.26 percent).
Declining urban population levels are more challenging to manage than rising urbanization. The CCP is aware of this, allocating a greater budget to internal security capabilities than it allocates to the People’s Liberation Army (PLA). But, just as there has been recent evidence of disaffection and hollowed-out capability within the PLA, it is probable that the internal security functions will also be less efficient than planned when confronted with major population unrest.
The irony is that the West, and particularly the United States, is forced into a position where it must hope to see a stable decline and “landing” in China both economically and socially, even though the CCP had, in 2018, literally declared war on the United States. The strategic dilemma for the United States and other countries concerned with China is whether to work toward a mainland Chinese implosion, which will sweep away the CCP entirely, or encourage a situation that allows the Party to continue to control that base-level mainland economy.
It is a choice between short-term chaos followed by a new and unknown China in the medium term, on the one hand, and short-term stability in commodities coupled with a reduced CCP threat but followed by a potential regrowth of China’s global power on the other.
There is no evidence of any consensus in threat assessment of the China situation by the United States, the West, or regional states presently gearing defenses to manage the Chinese regime. The final answer may be determined by CCP infighting, coupled with the anger of the mainland Chinese population.
Either way, it will be messy.
