Economist Paul Krugman probably ranks among the biggest China bashers among well-known economists. His latest article http://www.nytimes.com/2011/12/19/opinion/krugman-will-china-break.html?_r=1&emc=eta1 continues to fuel the usual misperceptions about China. First he claims that Chinese consumption still remains too low at 35%. He fails to mention, however, that low consumption is normal for countries that successfully transition from an agricultural economy to an industrial one because capital earns a greater share of national income. He also conveniently ignores the fact that China’s per capita consumption growth this past decade is the fastest ever recorded by any nation. The real per capita consumption growth actually accelerated to 10% per year.
He also claims that China has a real estate bubble, yet offers no evidence of one. China right now has a housing shortage because only 150 million out of the 250 million urban households are adequately housed. Additionally, over the next 20 years, another 100 million new urban households will be created from the rural migration to the cities so that annual housing completions must average 10 million a year for the next 20 years. Any “ghost” cities are just government officials building in anticipation of the demand. No doubt there will be some wasteful projects, but in the aggregate, the investments have been productive. Momentary valuation fluctuations should not be confused with the overall direction of development. Why Krugman thinks acting proactively to address problems is a bad thing is beyond me.
Even more ludicrous is the parallel that he draws between America’s shadow banking system and that of China’s. The U.S. shadow banking system consists of large multi-billion dollar hedge funds that use leverage to increase their bets to the trillions. China’s pawn shops have the sophistication of an abacus so the belief that their ability to engage in the kind of deals and leverage that could take down China is about as exaggerated as they come.
Finally he accuses the Chinese of being immature by slapping duties on U.S.-made autos while (again) failing to mention that the U.S. started the trade war first by banning imports of tires from China. The tariffs, by the way, are on SUVs, the biggest gas-guzzling machines which would make sense for China anyway given its pollution and congestion problems. If anyone is poisoning trade relations, it is Krugman and pundits like him who irresponsibly spread lies and myths. When his commentary is this biased, it helps no one, but harms everyone.