Will China’s Economy Hit a Great Wall?

Gives new meaning to the term "China Syndrome".

I'm guessing but I think China gets that it's spending that creates an economy. Spending on 'investments,' if it creates more spending by those employed, adds to GDP as well as equal spending on toys and Italian pasta--both are accretive. If an investments doesn't work out as well as projected, China can write it off without blinking an eye. Just like the Federal Reserve did, in a way, by spending and lending $4 trillion (minimum) back in 2009-10 to bail out the 1% who already owned everything. China is a monetary sovereign nation, it's fiscal powers are being applied and will successfully work through issues. Unlike the western developed monetary sovereigns who refuse to use their fiscal powers much, if at all.

I'm left with more questions than answers here. China has low levels of hard currency debt - doesn't this mean they can keep the investment game going for longer? also, doesnt one belt provide more investment opportunities? ie, it's not all a waste if it's capturing low hanging fruit in cambodia for example. also, it's the consumer now levering up, so isnt the whole exonomy going in the right direction, albeit slowly?

China has a few thousand years of civilization.... Predictions about what is happening behind the curtain are not likely to be reliable.

Countries with ageing populations, Germany, Japan and now China, have adopted quite well. They have invested heavily in the US and continue to do so. Just the annual trade deficit with these countries means we owe about $780 for each German, $540 for each Japanese and $270 for each Chinese. So, may be these countries expect to survive not by increasing their consumption but by increasing American consumption.

The real question the Chinese riddle raises is how valid are the free market economic models. They loaded with unproved assumptions based on unscientific philosophies of certain ideologically driven economists. Krugman alone being neutral can't overcome the consensus they force. While there is no doubt a lot of the theories have been proved in reality, the one thing they don't do well is factor in powerful entities manipulating the direction of the economy toward a desired goal. Instead most pretend the manipulation is irrelevant, because of the magic of the marketplace will eventually cause any such forced constructs to come crashing down. China seems to be proving that as long as such manipulation can produce enduring positive results that defy the basic numbers as long as it is carefully planned and executed by a powerful central authority with the power to force all major players to comply.

The Chinese are so corrupt you don’t have to worry, they will fake their way into being ok. Please, I’m pressing the “alarm” button. Please write about the link between Trump punishing federal workers with no pay with what Trump would do if we hit a horrible recession or depression with him as President. Don’t you see the danger? He would not bail out the people, he will literally let us starve if we have another recession. In the past ten years, most middle income people have gone from having maybe $6000 in credit card debt to maybe $20,000 or $30,000 to make up for lost wages. It didn’t really matter before when there was super low interest rates. But in the past year the banks have been yanking up the interest rates and now many, many people are struggling to pay their minimums. Please link this to what House of Debt talked about and how lack of income and an explosion of household debt triggered the Great Depression. Please write about ordinary Americans. Please write about what Trump would do, and how Bernanke wrote last September about how the Federal Reserve wouldn’t be able to save the economy if a recession happens now. Trump is going to starve us during the next recession. This is SCARY.

One thing China does have in it's favour in terms of continuing to grow - is now deadlock over R&D, tech and investment to alleviate climate change and environmental problems. They seems to be waking up to the fact that something needs to be done to improve things like air quality in cities - see investments in electric buses, LNG for inland water vessels, etc. - and then just do it. And when they do, they're creating new "green" export industries at scale much more rapidly than in the west.

For the full disclosure PK also posted this on election night 2016: “It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? A first-pass answer is never… We are very probably looking at a global recession, with no end in sight.” There is always going to be a next recession, so if you predict it every year it will eventually come true. China hard landing was in the news since late 90. We already had two recessions while waiting for China to slow.

I think China is still far away from a major meltdown. The future of China can be seen in the past of Japan. China's economic policies follow the old Japan policies so closely that it is very concerning because the Japanese model failed. The Chinese economy is nearly entirely based on parasite/host type trade relationships and trade surpluses created by unfair trade practices including controlled currency values, high import tariffs, non-tariff trade barriers. It is the same old stuff Japan did until the 1980's. Eventually, China will have to take off the training wheels. When they do, they will face many of the same problems Japan did where their price advantage is not so great. Their looming real estate bubble will crash just like Japan's did for the very same reasons. THEN we will see China topple, but that time is not now. I predict maybe 5 or 10 years later. What is probably more threatening to China is that they have helped fuel the trade war with their most important trading partner USA. If the USA puts the same 60% tariffs on Chinese goods like the Chinese did to USA agriculture, it would stop Chines exports to the USA dead in it's tracks.

On the brighter side, figure 2 shows that China has joined Japan and the other countries that have past peak population and now will apply their minds to humankind's most important necessary adaptation. In nature, plant and animal populations grow to a peak then crash, they bloom then have a die off. A lot of people facing this should be expected to work it out. Doesn't look like us or Britain right now. Other preoccupations.

Here is my question - can the authoritarian Chinese government force consumption? We know that the Chinese government can force anything on its people, so, it may be able to force consumption, although I would not know how they might do so. The traditional Chinese culture considers frugality to be the ultimate virtue. I wonder if Xi might start a movement, like Mao's cultural revolution, to break down that culture of anti-consumption. Alternatively, the Chinese leaders, including Xi, may not be able fight their cultural instinct and your prediction of Chinese depression may come to pass.

Will China's economy hit a brick wall? Let's look into our wayback crystal ball: 1990. China's economy has come to a halt. The Economist 1996. China's economy will face a hard landing. The Economist 1998. China's economy’s dangerous period of sluggish growth. The Economist 1999. Likelihood of a hard landing for the Chinese economy. Bank of Canada 2000. China currency move nails hard landing risk coffin. Chicago Tribune 2001. A hard landing in China. Wilbanks, Smith & Thomas 2002. China Seeks a Soft Economic Landing. Westchester University 2003. Banking crisis imperils China. New York Times 2004. The great fall of China? The Economist 2005. The Risk of a Hard Landing in China. Nouriel Roubini 2006. Can China Achieve a Soft Landing? International Economy 2007. Can China avoid a hard landing? TIME 2008. Hard Landing In China? Forbes 2009. China's hard landing. China must find a way to recover. Fortune 2010: Hard landing coming in China. Nouriel Roubini 2011: Chinese Hard Landing Closer Than You Think. Business Insider 2012: Economic News from China: Hard Landing. American Interest  2013: A Hard Landing In China. Zero Hedge  2014. A hard landing in China. CNBC 2015. Congratulations, You Got Yourself A Chinese Hard Landing. Forbes  2016. Hard landing looms for China. The Economist 2017. Is China's Economy Going To Crash? National Interest 2018. China's Coming Financial Meltdown. The Daily Reckoning.

Hey Paul, nice to see you are getting the recognition you deserve. A godsend to investors. Wow. https://libertythroughwealth.com/2019/01/11/krugman-best-contrarian-indicator/

if their employment falls one can expect the price of their exports to fall, and they should be able pay for the essential imports as to what China can make for themselves, ie supply themselves, they can redistribute wealth to make sure they have enough demand to purchase products, provided the redistribution of wealth doesn't hurt their own production one bad thing, is an unreliable America will keep countries like china from relying on our exports

"Honestly, I have no idea." I can't tell you how refreshing it is to read a column who's author is willing to make that statement. Thanks for treating your readers as if they're thinking adults, and keep on truckin', Dr. Krugman, keep on truckin'.

The interesting thing is that this is part of a large pile of eventualities -- not certainties, but likelies -- any one of which could occur in isolation, or all of which could also coincidentally occur together. China has actually managed its effort to transition to a more consumption-based economy pretty well, despite dire predictions, especially given the limited population, still, with discretionary income there. It's a consumption powerhouse for the future. But Brexit, Trump -- let's call it the Anglo-American Great Paralysis of the 21st century -- along with EU breakup, Russian and Middle Eastern instability, energy crises, water crises especially in highly populated regions; climate change, the odd natural catastrophe or three, sudden political-economic implosions happening on any one or a few of the world's continents, are each in themselves dire factors ready to bollocks everything up at any time. We are at a point in time where threading the needle to a successful (in other words, species-conserving, human along with others) conclusion is more difficult than ever. And we have morons in charge, the world wide. Ironically, Xi and Putin are exceptions to that rule. Their personal cleverness is not enough to save the planet, though. It's like we've been given a test, and we're mostly failing. Success means a future; failure means full-scale extermination. Not much time left.

I sometimes wonder what alien visitors might think if they arrived on earth and were told that their hosts were on the verge of an imminent crisis because their hosts were able to produce too much stuff. Thinking outside the box has for years been the mantra of individual firms. God forbid we should apply that kind of thinking to our way of living together in society! Time to recapture a little human imagination, people.

Welll... I'm reminded of Hemingway's bankruptcy quote, and the old market aphorism about its irrationality lasting longer than your solvency. Too bad Tariff Man doesn't (can't) read.

China's debt and Real Estate exposure are significant domestic issues that have been managed with variable success for almost a decade. Ironically, Trump's trade 'war' provides the CCP cover to shift the blame for economic belt-tightening to the U.S. Xenophobia is in both Xi's and Trump's arsenal.

You have not mentioned trade wars as a possible trigger for a Chinese economic contraction. But if their trade surplus is mainly with the United States -- an "anomaly," you called it -- then trade wars could definitely cause one.

China has helped the west save itself from the 1970s and 2000s crises first by providing abundant and cheap labor force and then, besides a labor market, a market for individual and productive consumption. China has been the main source of profits for many western companies during these decades. As you said, however, the rate of return is slowing as state of the art technology and productivity achieve western averages relative to labor force employed. Its role in stabilizing the global economy can quickly change into the opposite. Germany and many other important e economies are showing signs of deceleration, which confirm the trends after 2008 despite the uptick in 2017. Although nobody knows the extent of the consequences of the end of this cycle, we already know its ideological manifestation in the most superficial of phenomena like trade, borders, migration policies and so on. When capital flows and its return slow down, people react by erecting imaginary and real walls to save whatever they have appropriated. However, profits usually were created somewhere else besides the particular location they were realized.

My observations, China is steadily improving the quality of living for its people. Your finding that "they’re almost as much of a locomotive for the world economy as we are." is as much of a success story for U.S. trade strategy as it is for China. Remember they were at one time considered to be an underdeveloped economy. As my friend, the late Dr. Cyril Ponnamperuma, a noted scientist in the fields of chemical evolution and the origin of life and the founder of the 3rd World Academy of Science often said, 3rd World Countries had a wonderful opportunity to leapfrog and exceed the existing technologies of the developed World. He joined forces with me to address the UN Conference on the Environment in Rio in 1992. Our message, we must pay attention to the Earth's "commons", air, oceans, and soil by investing in ways to adapt our lives so that the Earth can support 11 Billion people by the end of the Century. An example of a leapfrogging, my wife and I hosted the head of China's National Academy of Science and back when mobile phones were brickshaped that you could carry around in a car and when I invited her to use the phone, her eyes lighted and she instantly saw that this was the way for China to advance its communications without stringing the country with copper wire. China has air quality problems and is working on it at a much faster pace than we are. I suspect that they will excel at developing systems to produce non-fossil energy and scrub the atmosphere.

Will China hit the Great Wall? Patent and copyright protection are the norm now but what if China chose to ignore them? As the biggest economy on the planet that produces more than anyone else, if they chose to do so without paying the tolls, what system could compete with that? It's America that's about to hit the Great Wall, not China.

I agree with Krugman's main point about a crisis in China being devastating. There is a problem with the graphs in this article, and they should be corrected. The differences shown in the graphs are exagerated because they do not begin at the origin (zero). It's easy to make this mistake, and Krugman's argument will still make sense if these graphs are corrected. People used to call this type of mistake "Time Magazine graphs".

Krugman misses the big picture. China isn't about to hit the Great Wall, Western Capitalism is. Monopoly and copyright protection, labor laws, human rights, environmental laws, trade agreements, etc...are all just agreements, dust in the wind, if China chooses. China can ignore all of them and since it's the largest economy on the planet in relative terms, if it jettisons Capitalism as we know it tomorrow and produces what it already produces in the Free Market without paying for the rights, it will leave Western Civilization in the dust. Game over.

Can the Chinese system even survive a great depression? In a democracy the citizens take responsibility over the selection of their leadership. In a monarchy the people need to believe God is instilling the king or queen with the essential qualities needed to guide the state and protect the people. As long as things improve for the people of China, they will support their leadership, but what happens when a collapse of their economy occurs? Where are the traditions and institutions that can protect them from a charismatic general bent on becoming a dictator?

As Dr. says, the Chinese are no beholden to any particular economic ideology then seem to be willing to try different tactics to keep their economy on track. They are willing to shut down unprofitable businesses unemployment does not seem to bother them. China has an uncountable workforce of young people in the western provinces willing to come to the industrial centers to improve their living conditions. I would say it has been watching and learning from our and other western countries mistakes. It may no be selling as much to the U.S. and Europe, but it has an underserved population to cultivate as consumers. There is also the laws of supply and demand at the lowest prices, something China can do by government action. So as Dr.K says just wait and see, it is hard to anticipate what those inscrutable leaders will do. Most of the country does stick together with clans and families leading the way. Don't short China, not a good bet.

I think the main reason these "demise of China" articles keep failing to come true is that China is still very much a poor developing country that is recovering from an artificially depressed state created by communism and foreign domination (neither condition exists any longer) and still has lots of room to grow. China has a lot of problems, but they are already "priced-in" to its low GDP per capita. When Japan hit its wall, it already had a similar GDP per capita to America. By contrast, China's GDP per capita right now is about half of Greece's. Can you really say that China's problems and imbalances are more severe than those of Greece? If China is able to catch up to even Greece (which I think it will), that means it has at least another decade of high-single-digit growth left.

I can shed some light on why Mr. Krugman and others have failed to predict the demise of China. China is not a monolithic entity. It is made up of the Han majority and 56 other minorities. Some of these minorities have bigger populations than many western countries. By example the Zhuang People number some 18 million. Also there are provinces like Jiangsu whose nominal GDP of around 10 trillion yuan exceeds that of Australia. There are 17 cities in the 1 trillion yuan club. The cities, provinces and cultural groups (including Macao, Hong Kong and Taiwan) are part of this vast free trade agreement that in itself rivals Europe by some 4 trillion dollars in PPP GDP based on the figures of the CIA World Factbook. Taking this all into account then China is more like EEC with a fiscal union. It just won't collapse because one region or industrial sector has difficulties. Just like Europe did not collapse because Greece had problems even though there was only a monetary union and not a fiscal union. Then there is the Chinese people and their family values. The USA particularly has developed in the majority an individualistic approach to wealth. There are such things as "Gift Taxes". Chinese consider their family to be part of a clan. Usually denominated by one of the family names. Much of the wealth is distributed through family relationships and a rising tide lifts all ships. (a family member becomes wealthy helps and invests in the other family members). A few factors to consider?

China just killed its first Nobel Peace Prize Winner. Germany did the same in 1935. Buy from China, build the Chinese military. Wake up people.

A corollary to Dornbusch's Law: You can lose a lot of money positioning yourself and then waiting for what you know has to happen to happen.

I would say a possible error is here "That investment number is huge by anyone’s standards; it’s hard to see how companies can avoid running into strongly diminishing returns." I think the problem is the "standards" we assume, based on the last 200 or so years, that RnD, and really dramatic new products, will occur as they do in western society but it is possible China has a better RnD model that will produce breakthrus faster then us eg,if they can test new drugs without worrying about ethics, it is possible they will find blockbuster new medicines

What does Krugman mean by this? "The important thing to realize here is that China no longer runs huge trade surpluses with the world as a whole (the U.S. bilateral deficit is exceptional and deceptive.)"

Substituting investment for comsumption shouldn't be that difficult: Xi should get a lot of political support because of that decision. The real problem is the other way around!

I appreciate Krugman's admitting to being wrong about his predictions for the Chinese economy in 2011, especially as I shared the same conclusions back then. My analysis suggests that the global recovery from the GreatRrecession along with the demographics of Chinese society may have postponed the prediction. By demographics, I'm suggesting that the one child policy yielded an abnormal shift in sex favoring males has influenced the desire to accumulate wealth (savings) as opposed to the blatant consumerism of the West. I would have liked Paul to examine the reasons why his predictions was erroneous at that time. In any case, both demographics and diminishing returns will result in the inevitable downfall of the Chinese economy.

Maybe one reason too much investment with scant returns in China's businesses has not led to an economic problem is that Chinese companies do not have to satisfy stockholders and only have to provide enough graft money to keep the Communist Party bosses rich and happy.

I realize it is important to have on the editorial staff an economist with the credentials of Krugman or Samuelson at the WP. They are both great at what they do and I admire Krugman’s writing style however with that said when he finished off his column with there are scarier things than Trump and Brexit and implying that when China falls hard it will send tremors throughout the world I guess that’s an economist talking but my first thought was the environment and the big surprise heading our way.

Are the Chinese loaning money to their SOEs, or are they printing money and giving it to them to invest/spend? If it is the latter, there is no reason the process can't continue indefinitely. As long as they don't overdo it and cause inflation, can't money printing keep the economy going forever? They could dress it up as 'loans', and fudge issues of repayment for years.

How much of their debt is dollar denominated? 1.2T... 3T? Russia has been acting as PBOC, selling dollars & buying RMB but for how long. At 3T reserve down 1T from '15 how much of a margin is that if Canadians are sentenced to death? Up next, a US Apple executive?

China's one child policy was abolished in 2015. Chinese citizens have since been allowed to have two children. Currently, the threat to the Chinese economy is Trump's disruptive trade policy. That threat is destructive both to the US and China. The fact that trade negotiations have gone nowhere since Trump and Xi met in Argentina at Christmas should be of great concern - as much concern as the trade representatives Trump has under his employ, or the economic adviser who sits in the White House. These people are yes-men who don't generally contradict Trump and carry out his whims, no matter how illogical or harmful. Whether you are pro-free trade or anti, getting out of either arrangement needs to be orderly. Trade wars are messy. The same principle that guides ending of agreements in the case of Brexit, guides ending free trade. When you just pull out or try to use blackmail to get better terms, you basically torch yourself and your interlocutor, promoting ill-will, devastation and, ultimately, huge losses. Trump doesn't care who loses if it isn't him. We should all care what happens to China. Getting the Chinese to be better world citizens doesn't need to be an adversarial or humiliating process. We have Trump, so... that's what we and China get, for now. -- Things Trump Did While You Weren’t Looking [2019] https://wp.me/p2KJ3H-3h2

Even if I didn't read these posts for the economic and political content I'd devour them for the cultural witticisms. With "Xi-who-must-be-obeyed" John Mortimer (and Leo McKern) are chuckling somewhere.

Loved the H. Rider Haggard reference!

I'm perplexed by Fig. 3. In the text, Prof. Krugman states that imports into China were $2.2 T in 2017. That would be about 18% of its $12.24 T GDP. Figure 3 puts it at about 2.5%. Where's the disconnect coming from?

Internal consumption in China could rise greatly if wages increase, which they are already doing. The Chinese government probably has a very different attitude about profits vs wages than that prevalent in the US. They may not consider profits and CEO compensation to be the first priorities. Company leaders actually do not need enormous payoffs to work hard, as the performance of the US in the post-WW II era proved.