Paul Krugman warns China is heading for a ‘very bad downfall’ as Xi Jinping looks more like a republican than a communist

Chinese President Xi Jinping attends a reception for Italian President Sergio Mattarella (not pictured) at the Great Hall of the People in Beijing, China, February 22, 2017.Reuters/Jason Lee

  • Paul Krugman writes that China has gone to great lengths to avert an economic crisis.

  • It needs to embrace stimulus, but Beijing’s ideology gets in the way.

  • Despite being a communist country, the leaders seem to disapprove of social welfare and consumer assistance.

Paul Krugman said that if China hopes to turn its economic fortunes around, it must be more faithful to its communist roots.

“China is a strange place ideologically. It is not really a communist society by any ordinary measure,” the Nobel Prize-winning economist said in an audio article published by the New York Times. “On the one hand, they don’t like just giving people money. They don’t like people being financially independent, because they still want the government to be in control.”

But Beijing’s refusal to provide consumers and businesses with some kind of help, such as a major stimulus program, means that its current economic challenges are free to expand.

Deflation, massive debt, sluggish growth and high unemployment have been major themes in China this year as consumers have significantly curbed their spending. Although this is an outgrowth of necessity, Krugman also points to a strong savings culture stemming from Chinese history.

In response to these issues, both investors and analysts have called for a stimulus solution. Instead, the Chinese leadership opted for smaller support measures, most of which had little effect. These range from interest rate cuts to easing restrictions on real estate purchases.

“China is facing a major economic crisis, and they have done everything they can to keep its economy afloat,” Krugman said. “Unless the Chinese government is prepared to face the need to do something very different, China is headed for a very bad fall.”

Some of the government’s caution about stimulus is also a reflection of President Xi Jinping’s ideology. Despite his leadership of the Chinese Communist Party, Krugman says the authoritarian leader seems more in line with the conservative Republican, citing how Xi denounces “welfare perils”.

While this “tough stance” has not been a problem during periods of high growth, Beijing must allow its residents some spending autonomy if it is to revive its economy, says Krugman.

If not, the economic crisis could turn into a political crisis, as China’s unemployed citizens begin to question their leadership. Since Beijing’s legitimacy comes from its stewardship of seismic growth in the past few decades, an abrupt end to this trend would cause problems.

“China is proud to have a system that is hypocritical on a deep level,” Krugman said. “It preaches Marxism, egalitarianism, the next communist utopia, and practices a greedy and deeply unequal capitalism.”

Read the original article on Business Insider

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