We use cookies to provide some features and experiences in QOSHE

More information  .  Close
Aa Aa Aa
- A +

Why China’s fear of inflation is misplaced

18 0 1

Who’s afraid of inflation? It seems like China is, judging by recent rebuttals from Beijing ruling out further massive policy stimulus along the lines of 2008, spoiling the chances of another major monetary push. Yet the risk of higher inflation is the last thing Beijing should be worried about right now.

The world economy is still moving in the wake of a deflationary hangover, and global demand-pull and cost-push price pressures remain subdued. Meanwhile, China’s inflation outlook looks benign. Beijing needs the courage of its convictions, to throw caution to the wind and ease monetary conditions to prevent growth slowing further.

China’s economy is slowing from a quick canter to a crawl. A major reason why China’s growth rate will extend its decline from around 6.5 per cent this year, possibly towards 5 per cent next year, is simply because Beijing’s growth policies are not up to the job. Thanks to the deteriorating global outlook, China should be stepping up monetary and fiscal stimulus, but the country’s economic planners are falling behind the curve. Policy is squeezed from two directions.

In real terms, inflation-adjusted central government spending is only expanding at an underlying 4.7 per cent annual rate, while 12-month M2 money supply........

© South China Morning Post