Renowned economist Paul Krugman warned that China’s economy could face a significant downturn unless the Xi Jinping-led administration returns to its communist roots.
What Happened: Krugman, in a New York Times audio essay, expressed his views that China’s economic challenges are exacerbated by its reluctance to provide financial aid to its citizens and businesses.
Deflation, massive debt, decreasing growth, and escalating unemployment have marked China’s economy this year. Krugman attributes these issues partly to a strong savings culture rooted in Chinese history.
“China’s an odd place ideologically. It’s not actually a communist society by any normal measure.”
“On one side, they don’t like to just giving people money. They don’t like people being financially independent, because they still want the government to be in control.”
“China is facing a major economic crisis, and they’ve run to the limits of the things that’s been doing to keep its economy afloat,” Krugman said.
“Unless the Chinese government is willing to face up to the need to do something very different, then China is headed for a very nasty fall.”
Why It Matters: Despite calls from investors and analysts for a substantial stimulus program, Beijing has favored smaller support measures. However, these have made little impact and range from interest rate cuts to leniency on property purchases.
Krugman, citing how Xi has condemned the “dangers of welfarism,” said Xi seems more aligned with a conservative Republican. He added that without a significant change in approach, “China is headed for a very nasty fall.”
“China’s proud that it has a regime that is at a deep level, hypocritical. It preaches Marxism and equality and the coming communist utopia, and practices rapacious, highly unequal capitalism,” Krugman said.
Meanwhile, U.S. President Joe Biden is poised to reestablish U.S. prominence in the global arena as Russian President Vladimir Putin and Chinese President Xi Jinping opt out of the upcoming Group of 20 (G-20) leaders summit,
Produced in association with Benzinga