China needs a new economic plan that focuses less on exporting and more on domestic growth, 'Dr. Doom' Nouriel Roubini says
China will stagnate if it relies on manufacturing and exports to grow, Nouriel Roubini wrote in Project Syndicate.
That growth model is outdated and worked in a time when foreign markets were more open to Chinese products.
Beijing must instead stimulate domestic demand and service-led GDP growth, the famed "Dr. Doom" economist said.
China can't grow out of its economic problems if it stays focused on manufacturing and exports, says famed "Dr. Doom" economist Nouriel Roubini. Though this strategy sparked decades of impressive growth, it could now put China on course for stagnation, he warned on Thursday.
"The old Chinese growth model is broken," the perma-bear economist wrote for Project Syndicate, later adding: "China therefore needs a new growth model concentrated on domestic services — rather than goods — and private consumption."
His pushback comes as Beijing increasingly focuses on advanced manufacturing, boosting exports of products such as electric vehicles and solar panels.
When China's economy was smaller, this form of growth made sense, as its exports were still manageable for foreign markets, Roubini said.
But with geopolitical tensions now rising, protectionism is starting to hamper the world's appetite for Chinese products, and could leave the country stranded with excess supply, he warned.
"Now that it is the world's second-largest economy, any dumping of its excess capacity will be met by even more draconian tariffs and protectionism targeting Chinese goods," he said. Other analysts have evened warned this could spark a trade war as soon as next year.
To avoid this and still generate growth, Beijing must instead invest in domestic demand, allowing services to take on a greater share of GDP, Roubini said.
His concerns are well-cited, as analysts have long pointed out China's low household consumption rates as a worrying set back for growth.
"The situation demands larger pension benefits, greater health-care provision, unemployment insurance, permanent urban residency for rural migrant workers who currently lack access to public services, higher real (inflation-adjusted) wages, and measures to redistribute SOE profits to households so that they can spend more," Roubini wrote.
But Beijing's leadership looks unwilling to bolster private-sector and household confidence, something Roubini blames on President Xi Jinping, citing that he's surrounded himself by advisors sympathetic to the current growth model.
Previously, economist Paul Krugman explained Xi's unwillingness to boost support for consumers and businesses due to a strong ideological dislike for for stimulus and welfare aid.
Read the original article on Business Insider
