Logan Wright on China’s Broken Economy, the Credit Bubble, and Broken China
Logan Wright of the Rhodium Group argues that China’s economy is in structural decline, not a policy-induced temporary slowdown, and that the financial system which enabled its rise now constrains its growth. In conversation with Demetri Kofinas, he reads China through a macrofinancial lens rather than a political one, contests both the “China rising” and the “China never reforming” narratives, and makes the case that leadership capacity to control outcomes is far more limited than either side of the debate assumes. The book is Broken China (2026). The conversation recorded on 23 September 2026, the evening of a Trump–Xi summit in Washington; only the first hour is public, with the second behind the subscriber feed.
Key ideas
- China’s economy is structurally broken. The financial system facilitated growth, served as a shock absorber for the political system, and now constrains it. This is the consequence of the largest credit boom and bust in at least a century, not a policy choice that can be reversed. The capacity of the leadership to control economic outcomes is far more limited than four or five years ago — you do not assume a policymaker at the start of a credit boom has the same leverage at the end of a credit bust.
- Headline GDP hides the decline. The property sector — 20 to 25% of GDP — collapsed (new housing starts fell 40% in 2022), and the headline GDP figure does not incorporate it. Komatsu equipment hours were down 14%; Alibaba sales fell 6–7%; retail sales declined. Yet Beijing published 3% growth. Wright puts real growth near or below zero in 2026, and notes that in nominal terms — which repays debt and drives profits — the United States has outgrown China over the last five years.
- The reform path was genuinely convergent until 2011–2012. Wright pushes back against both the Western narrative that China was never going to reform and the Chinese narrative that the West is containing a rising power. The turn was contingent on choices made in Beijing — the panic after the Arab Spring, the Bo Xilai incident — not structurally inevitable. The optimism about WTO integration was rational and evidence-based, not end-of-history exuberance.
- Moral hazard was strategy, then it collapsed. The post-GFC credit expansion — $24–27 trillion between 2008 and 2016, roughly a third of global GDP — ran on an implicit government guarantee that made moral hazard not a problem but a strategy. The guarantee collapsed in a cascade: peer-to-peer lending (2018), small banks (2019), trust companies (2020), property developers (2021), mortgages (2022), local government financing vehicles (2023). Credit demand collapsed with it, from a flight to risk to a flight to quality. You cannot reinstil the guarantee; no one would believe it.
- The “inevitable rise” is the propaganda, and it is the point. The GDP target is an internal signalling mechanism and a fiscal-financial stability target, not just a forecast. A CCP official told Wright in 2009 that if they said growth was 5%, everyone in the system would think it was zero and panic. Externally, the message that China’s rise is inevitable — deal with us today, we will be stronger tomorrow — pervades diplomacy and sanctions rhetoric. Wright’s argument is that the rise has, on several measures, already ended.
Content
Reading China through a macrofinancial lens
Wright’s distinctive move is to start from the credit cycle, not the political system. Most China analysts begin with a one-party state run by a technocratic elite capable of long-term planning, and grade the state on its achievements against declared plans like Made in China 2025. Wright begins with the fact that China had the single largest credit boom and bust in at least a century, and that no economy at the end of such a cycle has policymakers with the same leverage they had at the start. The question is not whether China has had a financial crisis — you can avoid one every day with short-term liquidity — but what the consequences of one are. China in 2026, five years after the Evergrande protests of September 2021, looks exactly like a post-crisis economy: persistent deflation, large fiscal deficits, a financial system that cannot generate the same growth rates, and increasing dependence on external rather than domestic demand.
Why the data diverge
The only series that point to stability are headline industrial value added and headline GDP. Everything else — persistent deflation since the shadow-banking collapse of 2018, producer-price pressure, capital outflows, a property sector that has collapsed with nothing replacing it — points the other way. Wright’s Rhodium Group digs into where money is actually flowing on the ground. The 2022 data were impossible to reconcile: a 40% drop in new housing starts in China’s most important industry, and they still published 3% growth. Since 2022, the errors are only on one side, because the property collapse is not in the headline number and nothing has replaced it.
The credit boom and the shadow banking system
The post-GFC stimulus was funded indirectly through the banking system, not through direct fiscal spending, because that was faster. Local governments borrowed; state-owned companies speculated in commodities. The system shifted between 2012 and 2016 from deposit-funded lending to state-owned enterprises (stable, if inefficient) to a shadow system funded by wealth-management products and lending to property developers, local government financing vehicles, and margin finance. The interbank rate hit 30% overnight in June 2013 when the PBOC tried to break the shadow system — and depositors kept buying 10% wealth-management products because everyone assumed the government would bail them out. The implicit guarantee was the engine.
The collapse of the guarantee
The guarantee died in a sequence. Peer-to-peer lending defaults in 2018, where 10,000 people organised a protest on WeChat and were busted by security forces before they could pressure the regulator. Small banks in 2019, trust companies in 2020, Evergrande and the property developers in 2021, individual mortgages in 2022, local government financing vehicles needing bailouts in 2023. Each collapse taught depositors that Xi Jinping’s centralised power would not repay them the way the old collective leadership might have. Credit demand collapsed because the flight to risk reversed into a flight to quality. You cannot go back: they do not want to reinstate the guarantee, and no one would believe them if they did.
Trade, imbalances, and the road ahead
China views global economic imbalances not as temporary problems to alleviate but as the deliberate objective of policy — expanding export share and value added whilst domestic demand stays weak. The West views them as problems to be solved. Wright thinks the disconnect is now larger than at any previous point, and that China may seek a détente on trade as the model becomes unsustainable. The second hour — behind the subscriber feed — covers the property market in detail, the concentration of power under Xi, zero COVID, the tech and education crackdowns, the policy implications for Beijing and Washington, and the primary risk categories in the book.
The book verdict (for Lu)
Broken China argues that China’s economy is in structural decline, its currency is overvalued, and its leaders are not the strategic long-term planning geniuses both sides have portrayed. The financial system enabled growth and now constrains it. The book assigns more blame to CCP policy choices and agency than Michael Pettis’s Trade Wars Are Class Wars (which Wright’s work touches but does not duplicate). The interview covers the thesis and the credit-bubble mechanics in the first hour; the book holds the full data, the historical narrative from 2001 onward, and the second-hour topics the paywall blocks — property, Xi’s power concentration, zero COVID, the tech and education crackdowns, the forward-looking risk categories, and the policy implications for both capitals. It adds enough beyond the interview to deserve a full read for anyone engaged by the conversation, especially for the financial-system detail and the risk taxonomy that the public hour only gestures toward.
Related
- Logan Wright — guest
- Demetri Kofinas — host