Paul Krugman: "Even if China Faces an Economic Crisis, It Won't Greatly Affect the US"

New York Times Op-Ed
US-China Investment Scale Not Large
China's Import Volume Also Below 1% of GDP

Paul Krugman, Nobel laureate in Economics and professor at the City University of New York, recently forecasted that "even if China faces a crisis similar to that of 2008, it is unlikely to have a significant impact on the United States" in relation to the possibility of an economic downturn in China.

In a column contributed to the New York Times (NYT) on the 21st (local time), Professor Krugman stated, "Although China's economy is large, the extent to which the U.S. is exposed to China's problems in the financial and trade sectors is significantly limited."

He noted that the value of Chinese real estate was inflated far more than that of Western countries during the 2008 global financial crisis, and that shadow banking and local government debt issues are also serious. Unlike Argentina and Greece, it is fortunate that China does not rely on external debt, but he diagnosed that the possibility of China’s economy falling into crisis exists due to insufficient expansion of consumer spending. However, he presented two reasons why even if the Chinese economy falters, it is unlikely to shock the U.S. economy.

First, he pointed out that the scale of U.S. investment in China is not large. Professor Krugman explained, "The total U.S. direct investment in mainland China and Hong Kong amounts to $215 billion, and the amount invested in stocks and bonds is $300 billion, totaling $515 billion," adding, "This is only one-fifth of the current value of U.S. office real estate, which is $2.6 trillion, where recent recession concerns are spreading." He evaluated, "Although it may not sound like a small number, it is small for a large economy like ours."

Additionally, Professor Krugman pointed out that although China is a major import source for the U.S., its share in the overall U.S. economy is minimal. He said, "Last year, imports from China were about $150 billion, which is less than 1% of the Gross Domestic Product (GDP)," and predicted, "The direct impact of a Chinese economic downturn on U.S. demand for goods is not significant." He argued that countries with high export dependence on China, such as Germany and Japan, would experience considerable repercussions, which could indirectly affect the U.S., but the influence would be limited.

Professor Krugman even suggested, "A crisis in the Chinese economy could reduce demand for raw materials, especially oil, which might slow inflation," and "there is a possibility it could have some positive effects on the U.S. economy." He clarified, "This does not mean we should welcome the possibility of a Chinese downturn or rejoice in the problems of other countries," but added, "From a purely selfish perspective, we should be concerned about what the Chinese government might do to divert its citizens' attention from domestic issues." He emphasized, "From an economic standpoint, it seems we are witnessing a potential internal crisis in China rather than a global event like that of 2008."

Regarding whether China can suppress the 'Minsky moment'?a point when accumulated debt surpasses a critical threshold, leading to asset value collapse and economic crisis?he withheld judgment. He stated, "China must replace unsustainable real estate investment with expanded consumer spending," but noted, "Senior officials are skeptical of 'wasteful' consumer spending and hesitate to give individuals more decision-making power over consumption." He continued, "The government is forcing banks to increase lending to respond to potential crises," concluding, "Therefore, a crisis could occur in China."

This content was produced with the assistance of AI translation services.