Claire Lambrecht

Former trustee Gordon Chang '73, J.D. '76, discusses how China has entered into a period of economic decline.

China expert Gordon Chang '73, J.D. '76, former Cornell trustee, stressed the likelihood of China's economic decline while speaking to a sold-out crowd of 50 at the Cornell Club in New York City Nov. 13.

"After 35 years of virtually uninterrupted growth, the Chinese economy has hit an inflection point," said Chang, a Forbes.com columnist, frequent television commentator and the author of "The Coming Collapse of China" (2001). "Now, it has started a long downward slide."

Evidence of this shift in fortune abounds, Chang said. The manufacturing sector is contracting, corporate profits are down, and perhaps most strikingly, financial capital is fleeing the country. More than $110 billion in assets departed during the second quarter of 2012 alone. Rather than temporary signals, Chang said that these indicators foreshadow broader economic decline.

Circumstances on the ground offer little relief, said Chang, who has given briefings at the National Intelligence Council, the Central Intelligence Agency, the State Department and the Pentagon. For years after the Cold War, China benefited from favorable trade conditions and a bulge in the size of its workforce. Today, however, China's conditions have changed. International trading partners are frustrated with China's protectionist policies. The Chinese population is shrinking. Moreover, the political reforms that once inspired growth are beginning to dissolve.

"China is no longer reforming," Chang said. "Hu Jintao, the current leader, has presided over an era marked, on balance, by the reversal of reform."

Adverse economic conditions in China have important implications within the country and in the international arena, he said. "The economic problems will define China going forward. They will drive the political dynamics inside the Communist Party. The party's internal dynamics will determine the country's external behavior," Chang said.

In the international realm, Chang said, China may be on a collision course with some of its neighbors.

"We made a bet that China would become a reliable partner," Chang said, reflecting on previous trends in U.S.-Sino relations. "In many ways, it was the grandest wager of our time. So far, through engaging China, we have created an economically powerful, but also an expansionist, state."

Chinese territorial ambition, particularly in disputed areas like the South China Sea, is antagonizing its neighbors, Chang said. "By their own admission, they're spoiling for a fight," he said.

It is this antagonism, Chang said, that inspired the United States to recently rebalance its relationship with China. For decades, U.S. policy toward China was one of engagement, rather than competition. At the behest of American allies in Southeast Asia, however, that has begun to shift. In addition to cutting China out of the Trans-Pacific Partnership, a free trade zone, and declaring interest in settling disputes in the South China Sea, the U.S. Navy committed to deploy 60 percent of its fleet to the Pacific by 2020.

All of these issues are further exacerbating China's economic woes, Chang said.

"China's problems are now starting to feed on themselves. The slumping economy is causing a crisis of legitimacy. The legitimacy crisis is causing Chinese leaders to fall back on nationalism and increase friction with other countries. This increased friction with other countries is now aggravating problems in the Chinese economy. It's a vicious cycle downward," Chang concluded.

Claire Lambrecht '06 is a freelance writer based in New York City.