According to Nobel economist Paul Krugman, China’s economy is headed for stagnation.

According to Nobel economist Paul Krugman, China's economy is headed for stagnation.

China Economy

China’s economy is headed for a major slump, according to Nobel laureate Paul Krugman. In a recent op-ed for the New York Times, Krugman compared China’s disappointing economic performance to Japan’s economic woes in the 1990s, suggesting that China’s future may be even worse.

Krugman points to key demographic issues as a major factor contributing to Japan’s economic decline. Low fertility and low immigration rates led to a rapid decline in Japan’s working population, resulting in weak investment and higher debt balances. China is now facing similar challenges, as its population ages and younger workers struggle to secure jobs. In fact, China recently posted a record 21% youth unemployment rate, according to data from the Chinese government.

On top of demographic concerns, China is also grappling with an unbalanced economy. The COVID-19 pandemic has further hindered the country’s economic recovery, with manufacturing activity contracting in May and real estate activity stagnating. These factors have raised concerns about China falling into the “middle income trap,” a phenomenon where emerging economies experience rapid growth but then stagnate.

The big question now is whether China can replicate Japan’s ability to manage slower growth without mass suffering or social instability. Krugman wonders if China, under an erratic authoritarian regime, is capable of pulling this off. Social cohesion will be crucial in navigating a potential slowdown, and it remains to be seen whether China can achieve this.

The concerns raised by Krugman are shared by other experts as well. Some believe that China’s reopening efforts are “doomed to fail” as demand continues to sputter. These experts view China’s reopening attempt as a mere “charade.” It’s clear that there is growing unease about the country’s economic future and its ability to sustain growth amidst challenging circumstances.

China’s economy has been a driving force for global economic growth over the past few decades, but the warning signs are looming. As the nation grapples with demographic challenges and an unbalanced economy, it will need to navigate these issues carefully to avoid a major slump. The world will be watching closely to see how China manages its economic future and whether it can avoid the fate that befell Japan.