The former economist of the International Monetary Fund (IMF) Raguram Rajan called the tough measures of the Chinese authorities in relation to most of the sectors of the economy – from the technological sector to private education and the real estate market – the risk of making a big mistake, reports CNBC.
“I am very worried about China, because to some extent they attack the basis of their growth. At some point, they will have to abandon this method and go to the new one,” said Rajan.
According to him, the largest area that China is trying to reform is a housing market. China’s authorities took measures to deter strengthening of real estate prices, including by reducing the financing of developers with large debt. According to Rajan, such a step is unreliable in the short term. He noted that like the Chinese developer Evergrande, who is trying to pay debt to avoid default, other developers may face similar problems.
According to Rajan, if the prices for real estate fall due to government measures, homeowners will become poorer, and local authorities will lose income. They, as the economist noted, are an important source of financing for local firms.
Beijing’s tight politics was particularly affected by the technological sector and private education. Strengthened state control over large companies is largely related to the implementation of the program of “General prosperity” – the policies of moderate wealth for all. To resolve the inequality in income, the government will force the rich Chinese and large companies pay more taxes. New bills slowed down China’s GDP growth. The economic problems faced by the country forced large banks to reduce GDP growth forecast to 8.2 percent for 2021.