Monetary Matters with Jack Farley The Triumphs & Crises of China’s Economy | Professor Barry Naughton on China’s Debt, Deflation, and “Industrial Policy 3.0”
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Jan 18, 2026 
Barry Naughton, a leading expert on the Chinese economy from UC San Diego, explores the dynamics of China’s current economic struggles, including a severe housing bust and persistent deflation. He discusses the transition from market liberalization to state-driven industrial policy and its implications for global AI competition. Naughton also highlights the effects of demographic changes on growth and suggests policy reforms needed to stimulate household consumption. A must-listen for insights on China's economic future and geopolitical tensions with the U.S.
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Tech Gains Mask Deep Economic Strains
- China pairs impressive tech achievements with deepening structural problems like housing busts, fiscal stress, and rising debt.
- Barry Naughton warns these entrenched issues will drag on growth even if no immediate collapse occurs.
Japanization Risk From Debt And Policy Mix
- China faces a debt problem intertwined with a housing bust and aggressive tech policy, risking a slow-growth Japan-like outcome.
- Naughton sees parallels to Japanization: prolonged debt, slow cleanup, and long recovery.
Investment Shift Hid Growth Weakness
- Credit shifted from housing into state-directed high-tech manufacturing, keeping headline GDP near 5%.
- That shift created massive industrial overcapacity and persistent deflationary pressure.
