China’s leaders are “bizarrely unwilling” to use more government spending to support consumer demand instead of production, according to Nobel laureate in economics Paul Krugman.
“The fact that we seem to have a complete lack of realism on the part of the Chinese is a threat to all of us,” Krugman told Bloomberg TV’s Shery Ahn and Haidi Stroud-Watts in an interview yesterday.
Krugman echoed criticism by US economic officials including Treasury Secretary Janet Yellen that China can’t simply export its way out of trouble. The comments come amid renewed concern in the US and Europe over what is viewed as Chinese overproduction and the dumping of heavily subsidized products overseas.
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“We can’t absorb, the world will not accept everything China wants to export,” Krugman said on Bloomberg TV’s The Asia Trade program.
China’s whole economic model is not sustainable because of “vastly inadequate” domestic spending and a lack of investment opportunities, he added. Beijing should be supporting demand not more production, he said.
Another prominent economist, Stephen Roach, weighed in on China’s economy yesterday. He said he found a grim mood on the ground in Beijing during a visit recently, especially among entrepreneurs and students.
“I found a Beijing that really didn’t have much of the spark that I had been accustomed to over my many years of traveling there,” Roach said in a Bloomberg TV interview. “Certainly the best I could call it was a mood of grim resignation,” said the former chairman of Morgan Stanley Asia who now teaches at Yale University.
A regular policy adviser to the Chinese government, Li Daokui (李稻葵), predicted more supportive policies for the economy in the coming months. Speaking to Bloomberg TV, the Chinese economist called on Beijing to issue much more central government debt to make up for the inability of cash-strapped local authorities to spend money and drive growth.
Separately, a private survey yesterday showed China’s manufacturing activity expanded at the fastest pace in almost two years last month, contrasting with weak official data that dented the country’s growth outlook.
The Caixin manufacturing purchasing managers index rose to 51.7 last month from 51.4 in April, slightly above the median forecast of 51.6 by economists in a Bloomberg poll and the highest since June 2022. Any reading above 50 suggests an expansion.
The upbeat private survey results compared with China’s official manufacturing PMI published on Friday showing factory activity unexpectedly contracted last month. The two surveys cover different sample sizes, geographic locations and types of businesses, with the Caixin poll focusing on smaller and export-oriented firms.
The Caixin PMI has outperformed the official index for seven consecutive months since October last year. Economists have attributed the differences between the official and the private surveys this year to improved external demand but a subdued domestic market.
Key to China’s efforts to hit an annual growth target of around 5 percent, the manufacturing sector is threatened by rising trade barriers from the US, EU and other countries as tensions mount over complaints of Chinese overcapacity and unfair competition.
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