What They Say
Renowned economist, in a New York Times subscription newsletter has pointed out that in his view, the Chinese economy has a high risk of hitting problems as growth in recent years have largely been based on ‘an immense housing bubble’. Growth has been slowly declining as the economy has developed. Part of the slowing growth is a drop in birth rates that is making the demographics of the country look more like an old economy. Further, savings are ‘too high’ as consumers save for older age as they have few children and do not want to rely on the state later in life.
Krugman sees the current problems at Evergrande as a symptom of the housing bubble.
On the positive side, he pointed out that much of China’s economy is not closely tied in to the rest of the financial world, so problems there might not have the economic impact of the collapse of Lehmans. However, it might cause political problems globally, depending how the government reacts.
What We Think
I don’t normally try to cover macroeconomics, but I do find the spectre of a bust following a property boom as concerning. I well remember the problems in the early ’90s in Japan that led to what some called ‘the lost decade’. Krugman is an ex-MIT and Princeton economist.
There are three charts in the ‘gallery’ below showing the real estate issue, growth and population. (BR)
