Paul Krugman warns China is headed for a 'very nasty fall' as Xi Jinping sounds more like a Republican than a communist


"China 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" 

Wed, September 6, 2023
REUTERS

China has reached the limit of what it can do to stave off an economic crisis, Paul Krugman wrote.

It needs to embrace stimulus, but Beijing's ideology is getting in the way.

Despite being a communist country, leaders seem to disapprove of welfare and consumer aid.

If China hopes to turn its economic fortunes around, it will have to be more faithful to its communist roots, Paul Krugman said.

"China's an odd place ideologically. It's not actually a communist society by any normal measure," the Nobel economist said in a New York Times audio essay. "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."

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

Deflation, massive debt, falling growth, and rising unemployment have all been major themes in China this year, as consumers have largely limited spending. Though this is the outcome of necessity, Krugman also cited a strong savings culture stemming from Chinese history.

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

"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."

Some of the government's wariness around stimulus is also a reflection of President Xi Jinping's own ideology. Despite leading the Communist Party of China, Krugman says the authoritarian leader seems more aligned with a conservative Republican, citing how Xi has condemned the "dangers of welfarism."

While this "puritanical attitude" has not been an issue during periods of high growth, Beijing has to allow its populace some spending independence if it wants to revive its economy, Krugman argues.

If not, the economic crisis has the potential to turn into a political one, as China's unemployed citizens begin to doubt their leadership. As Beijing's legitimacy comes from having overseen seismic growth in the past few decades, an abrupt end to that trend will cause problems.

"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.