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We would have read about man made disasters as well as natural disasters but today’s china’s deflation is completely because of China and how it should reform in order to allow its country to come out of deflation. For now deflation in china could be a temporary phenomenon but if it doesn’t reform politically the Chinese economy will stagnate like the Japanese economy.
China’s rise
As we all know China is controlled by the Chinese communist party (CCP) which is a dictatorial regime. Under their regime China emerged as the second largest economy and manufacturing hub of the world. It is easy for any authoritarian country to become a manufacturing hub because you can easily gobble up the land from farmers and give it to a company . It crushed all labour unions and companies just love it because they can make workers toil as they wish. If any company ties up with a chinese partner i.e a member of CCP they can get all the requirements/permissions in a matter of time crony capitalism at its best. CCP members became wealthy by diverting all the resources of the economy by concentrating on improving the productivity of the country which in turn has driven exports , which made them wealthy. I am absolutely sure that without authoritarianism China would not have reached where it is today.
What’s next for China
Now China is a middle income country, they are aspiring to become a high income country by next two decades. Any country that aspires to become a high income country can do it only with the power of brain not with brawn. For that they need to export high quality services rather than low quality goods. To export services you need democratic state because western countries don’t worry about where their vacuum cleaner is coming but they definitely worry about where their data is being used and how it is being used.
Is China ready for it?
Answer is no. For the next phase of growth you need political reforms, the CCP needs to give up its political power. For new ideas to flourish you need democratic values.But CCP is going quite opposite to it,recently we have seen the crackdown of chinese tech sectors because they were growing in size and becoming powerful.Within a matter of days many of the Chinese stocks were hammered very badly causing a loss of billions of dollars to the investors. To add to it the world saw how China treated their poster boy Jack Maa for merely criticizing the government. Looking at this investors are worried about investing in China which can be seen even in their recent FDI outflow data.
The Chinese people are also suffering because of the crackdown on investments. Unlike in India even though Chinese graduates are highly talented they are facing unemployment. Chinese aren’t consuming a lot but they are saving their money because they are very much worried about their future which is causing deflation in their economy. My opinion is that the CCP needs to give up their power because many countries like the US,UK, South korea became middle income countries with authoritarianism but they became high income only after allowing democratic processes to flourish even CCP need to do it.
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