China’s Recession-Proof Economy Heads to a Stress Test

China bears have had a bad decade. Repeated predictions that China’s large and growing pile of debt would lead to an economic crash have been wrong so far. The country sailed through the global financial crisis. It has weathered the slowing global demand for its exports, the drying up of its excess rural labor supply, slowing coal production, and the peak and decline of its working-age population. In 2015 and 2016 it experienced the bursting of a stock-market bubble, followed by more than a year of capital flight. And though the country’s growth has slowed from an unsustainable 9 or 10 percent to a more measured 6 or 7 percent, there has been no crash, no hard landing and no collapse of what is proving to be an extraordinarily resilient political and economic system:

Some China bulls attribute this impressive stability to the fact that the country’s economy is much more government-controlled than that of the U.S. or of most developed countries. As long as the ruling Chinese Communist Party carries out wise, level-headed policies, and as long as the country’s business leaders and investors continue to believe that policy will support the economy, the argument goes, a crisis of the type that afflicted the U.S. in 2008 or Japan in the early 1990s is unlikely. For example, many cite China’s ability and willingness to bail out its banks, as it did in the 1990s. As long as private-sector actors are certain that such a bailout would be forthcoming, it will be hard for a panic to begin.