“Decay is an easier political choice for China's leaders, accepting the slowdown in growth and the inefficiency of policy tools rather than risk crisis. Because the path to crisis is not an external shock in China, where everyone assumes the government is going to provide support. The path to crisis is reform.”
ChinaTalk · Geopolitics & World Affairs · September 2026
Context
Brad Setser had asked why China's enormous post-2008 credit expansion never ended in a catharsis like 2008 in the US or Spain's banking collapse. Wright's answer, and the thesis of his book Broken China, is that there was no single crisis moment because Beijing keeps choosing slow decay instead, and that the reforms outside observers keep calling for are precisely what would trigger the reckoning. He dates China's nearest equivalent to the Evergrande protests of September 2021.
Transcript
…the slowdown in domestic economy and the rise in the external surplus are very closely linked, but people still treat them as distinct to a greater extent than they argue the economy is K-shaped when in reality, that has been the pattern of development. But these are basically the same phenomena.
…seem to lose access to financing. So it's, I think, interesting also to ask: why was it possible to have such a big crisis, I mean, a big credit expansion without it ending in something that more clearly approximates the kind of financial crisis most countries experience after such a big windy
sure. Let me talk about the crisis moment first. I would argue China had the equivalent, first of all, you know, the crisis is the story I tell in the book is a story of, it is not a story of crisis or collapse, but decay over time of policy tools of an attempt to forestall these immediate crises at the cost of longer-term adjustment. And that's really, I think, one of the themes of the book, that decay is an easier political choice for China's leaders, accepting the slowdown in growth and accepting the inefficiency of policy tools rather than risk crisis, because the path to crisis is not an external shock in China where everyone assumes that the government is going to provide support. The path to crisis is reform. And the other answer that I would have on that front is I would argue China had that cathartic moment. And in fact, that's exactly what the book leads off with, which is the protests in the lobby of Evergrande's headquarters on September 13th, 2021. And what happened there was China's largest firm in its most important industry could no longer meet its obligations to its own…
I just wanted to maybe spotlight some of Logan's pros from the book. For years, long-term trends in China's economy and financial system have appeared unstable. Everyone asks, you know, when's the crisis coming? But the more precise question to ask is how long can these trends continue before China…
Yeah, I mean, I think there's, there's, there's differences with Japan scenario, but Japan's probably the closest analogy in recent history. And I think the difference with Japan is that Japan had zero-bound monetary policy. Therefore, you know, they had to rely upon fiscal stimulus to solve the…
All right, Logan, you know, cute Western PhD thinking he's got all the answers. I'm Xi Jinping. I'm here to get to stabilize party rule and to make China a world power. And how am I defining world power? I'm not defining world power by ghost cities and second homes for middle class people and…
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