Friday, July 19, 2013

Paul Krugman Claims That China's Economy Has Hit A Wall

Krugman raises some caveats about the accuracy of data available in China, but he argues that the Chinese economy is in for a day of reckoning.  Compared with other economies, China's economy has been overbalanced towards investment.  Personal consumption is much lower in China as percent of its economy than it is in most other countries as well.  The wall that China has hit, according to Krugman, is the investment wall.  There are fewer opportunities for investment that provide a good return.  China has also reached a point where surplus labor is falling.  Wages have been rising and China will have to devote more of its output to personal consumption.  The model that China has been using to promote rapid economic growth will have to be modified, and China will not be able to grow at its current rate according to Krugman.

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