Xiang Songzuo is a Chinese academic and an economist. He serves as the Chief Economist of the China Agriculture Bank and is a professor at the Renmin University School of Finance. He has become known for asserting that China’s GDP growth was only 1.67 percent in 2018.

Recently, Xiang made another speech on the reasons why China’s economy slid so badly in 2018:

First, tightened government financial control caused many companies to face a shortage of capital supply. However, this was not the main reason.

Second, China’s stock market dropped 30 percent and lost 7 trillion yuan (US $1 trillion) in value in 2018. Xiang felt that the scale of the stock market crash in China over the past ten years is comparable to the drop in the U.S. in 1929. Xiang pointed out that, in the past ten years, Chinese companies’ growth has not been based on improvements in technology or growth in profits or assets, but rather on borrowing from banks. He quoted Zhu Yunlai, son of former Primer Zhu Rongji, who stated that China’s total debt exceeds 600 trillion yuan (US $90 trillion). Chinese companies just do not make money. However, this was still not the main reason.

Third, the government’s inclination to eliminate private ownership and expand state owned companies has greatly hurt private companies’ confidence and their incentive to grow. In Xiang’s view, this was the most important reason.

Fourth, the trade war with the U.S. was an external reason.

Xiang also warned that nowadays Chinese have become addicted to playing with debt and high leverage financing. This is actually a mirage and will collapse soon. When all people all of sudden realize that the assets (e.g. real estate property or financial products) that they bought are not worth that much, everyone will try to escape (and avoid big financial losses), but by then nobody will be able to escape.