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China\u2019s leaders are \u201cbizarrely unwilling\u201d to use more government spending to support consumer demand instead of production, according to Nobel laureate in economics Paul Krugman.\u00a0<\/p>\n
\u201cThe fact that we seem to have a complete lack of realism on the part of the Chinese is a threat to all of us,\u201d Krugman told Bloomberg TV\u2019s Shery Ahn and Haidi Stroud-Watts in an interview on Monday, where he also touched on Japan\u2019s economy and the benefits of a weak yen.<\/p>\n
Krugman echoed criticism by U.S. economic officials including Treasury Secretary Janet Yellen that China can\u2019t simply export its way out of trouble. The comments come amid renewed concern in the U.S. and Europe over what is viewed as Chinese overproduction and the dumping of heavily subsidized products overseas.<\/p>\n
\u201cWe can\u2019t absorb, the world will not accept everything China wants to export,\u201d Krugman said on Bloomberg TV\u2019s\u00a0The Asia Trade<\/em><\/a>\u00a0program.<\/p>\n China\u2019s whole economic model is not sustainable because of \u201cvastly inadequate\u201d domestic spending and a lack of investment opportunities, he added. Beijing should be supporting demand not more production, he said.<\/p>\n Another prominent economist, Stephen Roach, weighed in on China\u2019s economy on Monday. He said he found a grim mood on the ground in Beijing during a visit recently, especially among entrepreneurs and students.\u00a0<\/p>\n \u201cI found a Beijing that really didn\u2019t have much of the spark that I had been accustomed to over my many years of traveling there,\u201d Roach said in a Bloomberg TV interview. \u201cCertainly the best I could call it was a mood of grim resignation,\u201d said the former chairman of Morgan Stanley Asia who now teaches at Yale University.\u00a0<\/p>\n A regular policy adviser to the Chinese government, Li Daokui, predicted more supportive policies for the economy in the coming months.\u00a0Speaking<\/a>\u00a0to Bloomberg TV, the Chinese economist called on Beijing to issue much more central government debt to make up for the inability of cash-strapped local authorities to spend money and drive growth.<\/p>\n Looking beyond China, Krugman said he found it hard to understand why Japanese authorities are panicking over a weaker yen that helps boost demand in that economy.\u00a0<\/p>\n \u201cI have to say what puzzles me is why Japan is so worried about the falling yen,\u201d Krugman said.<\/p>\n \u201cA weaker yen, after give it a bit of a lag, that\u2019s actually positive for demand for Japanese goods and services,\u201d Krugman said. It\u2019s \u201cpuzzling why the weaker yen is inspiring as much panic as it seems to be.\u201d<\/p>\n Krugman spoke after a government report Friday showed Japan spent a record amount to defend the currency in the past month. After the actions by the government side, the BOJ is increasingly seen likely to raise rates by July to ease pressure on the yen.<\/p>\n Krugman, now at the City University of New York, isn\u2019t all convinced that Japan is finally having sustainable inflationary pressures.<\/p>\n \u201cI hope so, but I\u2019m not convinced by trying to look at the Japanese data,\u201d Krugman said. \u201cI still don\u2019t see the kind of fundamental strength. A lot of Japan\u2019s long-term weakness has to do with demography, has to do with extremely low fertility. That hasn\u2019t changed, although Japan is at least more open to immigration than it used to be. But it\u2019s a long way.\u201d<\/p>\n Japan\u2019s economy contracted in the last quarter, extending a period of no growth starting from the middle of last year. That underscored a lack of momentum even after the BOJ ended its massive monetary easing program in March with the first rate hike in 17 years.\u00a0<\/p>\n The biggest driver for the yen weakening is a wide interest rate gap with the Federal Reserve. While few expect the Fed to cut rates soon on the back of sticky inflation, Krugman reiterated his view that it\u2019s better to cut rates soon with the chance of re-accelerating inflation looks very small if the Fed cuts rates.\u00a0<\/p>\n \u201cI would go for the rate cut if only to signal, hey, you know, we\u2019re not asleep here, we\u2019re not going to be obsessed with inflation until that\u2019s so far in the rear-view mirror that we really should have been focusing on the car wreck in front of us,\u201d Krugman said.<\/p>\n<\/div>\nOn Japan<\/h3>\n
\u2018A Long Way\u2019<\/h3>\n
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