Paul Krugman Slams Beijing's Economic Model: 'World Will Not Accept Everything China Wants To Export'

Benzinga · 06/03 11:31

Renowned economist Paul Krugman has voiced concerns about China’s economic approach, stating that the country’s leaders are “bizarrely unwilling” to shift focus from production to consumer demand.

What Happened: Krugman, a Nobel laureate in economics, expressed his apprehensions during an interview with Bloomberg TV on Monday. He highlighted the potential threat posed by China’s economic model to the global economy, Bloomberg reported on Monday.

"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," he said.

The economist echoed previous criticism by U.S. economic officials, including Treasury Secretary Janet Yellen, who have warned that China cannot rely solely on exports to resolve its economic challenges.

"We can't absorb, the world will not accept everything China wants to export," Krugman said.

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He also raised concerns about the world’s capacity to absorb China’s exports, which has led to renewed unease in the U.S. and Europe regarding what is seen as excessive Chinese overproduction and the export of heavily subsidized goods.

According to Krugman, China’s current economic model is unsustainable due to "vastly inadequate" domestic spending and a lack of investment opportunities. He suggested that Beijing should prioritize supporting consumer demand over increasing production.

Why It Matters: The warnings issued by Krugman echo earlier concerns about China’s export-focused growth model. Leland Miller, CEO of China Beige Book, cautioned that China’s shift to an export-driven strategy could instigate a global trade war.

In April, despite reporting economic growth, Chinese exporters faced challenges at the Canton Fair. Exporters struggled with declining exports in dollar terms and a persistent drop in producer prices, suggesting a complex recovery path post-pandemic.

Furthermore, in May, China’s trade practices were criticized by the G-7 nations, leading to a sharp rebuttal from Beijing. The G-7’s concerns over China’s non-market policies and their impact on the global economy were dismissed by Chinese officials as an exaggeration.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari