Alan Hands

ECON 333

China Inflation Article

What I found most interesting about this article was the notion that despite all we have read in
the news and anticipated over the last number of years, China may have some serious
economic problems of their own. China’s inflation fight threatens their economy and there are
serious underlying questions such as: is their current economic model of constantly
undervaluing their currency a sustainable economic model to follow? Inflation has arrived in
China and many economists predict that they will not be able to tame rising prices anytime
soon. I found it interesting that the article stresses at the end how American importers of
Chinese goods will feel the squeeze the effect to the American consumer may be subtle. The
biggest impact on the consumer will be in China itself. As China’s booming economy enables
more of its own citizens to buy the goods pouring out of its factories, Chinese consumers are
feeling inflation directly. As we have seen in Egypt and Greece, these economic problems may
cause social unrest in China, so officials in Beijing are understandably worried about the current
situation.

What I also found surprising about this article was the knock on effect this may have to the
banking sector in China. The central bank has been pumping out currency at an ever-
accelerating pace over the past decade to limit the Chinese ‘renminbi’ against the dollar. This
strategy has helped preserve a competitive advantage of Chinese exporters by keeping their
prices relatively low on global markets. Money supply figures for December, which the central
bank released recently, showed that cash and bank deposits were increasing at a rate twice as
fast as even China’s soaring economy. The whole world will be keeping an eye on this Chinese
situation as it threatens to spiral out of control. The true question will be asked after events
over the last 2 years. Will the Chinese Economy be the next nation to crumble as a result of the
Government’s poor & unsustainable economic policy, like Greece, Iceland & Ireland among
others? Only time will tell.