On "Forbes Newsroom," author and U.S.-China relations expert Gordon Chang discussed China's economic struggles and the continued trade war with China.
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00:00To that point, I mean, we, anyone else could talk about rebalancing all day long.
00:05If China's not going to participate, if they're not going to come to the table, there's really not going to be any rebalancing.
00:11So do you see that type of rebalancing realistically happening?
00:15Well, it will happen because what China is doing is unsustainable, where consumption is so low, manufacturing so high.
00:24But the rebalancing is probably not going to be the thing that everybody is contemplating.
00:30It's going to be a crisis.
00:32Remember, China is starting to have its 2008.
00:36In 2008, China didn't want to suffer a recession.
00:40So it overstimulated its economy by pouring on massive amounts of debt.
00:45But in the five years after 2008, starting 2009, China created an amount of credit roughly equal to that in the entire U.S. banking system, even though in 2008, the Chinese economy was less than one third the size of ours.
01:00In many respects, that's the biggest stimulus program in history.
01:04Now they built all of these apartments that are vacant.
01:07They built high speed rail lines to nowhere.
01:09They've got to start resolving their debt situation.
01:12And they're having problems because they don't have the political will to do it.
01:16You'll hear a lot of people say, well, you know, China doesn't owe very much money to the rest of the world, so they should be able to solve it.
01:24No, that's not right.
01:25When we look at the history of financial crises, the easiest ones to solve are when countries owe money to others.
01:31Because then you just send your finance minister to New York or London, you negotiate a discount on the debt, and you come back a political hero.
01:40That's what Argentina has done so many times.
01:42The problem is in China, they can't do that because the debt they owe to themselves, which means any resolution of the debt situation, is going to involve local parties suffering pain.
01:54And the Communist Party has not been able to enforce pain on local parties.
01:59So I think that this is going to be something where they are going to hold out to the very end, and you're going to see a rapid failure of the Chinese economic system and its banking and political system as well.