Ch Headlines:
China May Set 4% Inflation Target for Next Year, Tighten Policy
Inflation Expectations Rise on Wages, Resource Prices, PBOC Says
Setting inflation targets, worrying about inflation expectations, reserve requirements, etc.
It’s all monetarist nonsense from the western educated kids now in charge.
I think Beijing’s hands are tied when it comes to policy responses because politically they can’t stem inflation through taxes or a decrease in spending because the people are already economically suppressed and such moves would run counter to larger economic goals. I also think there is a decent chance that monetary responses (specifically higher interest rates) will backfire because most Chinese are savers and most solutions on the table will put MORE money into their pockets.
Warren, if you were in charge what steps would you follow?
Also for those interested in the topic here is a thorough discussion on inflation by Chinese economist Andy Xie: http://english.caing.com/2010-11-24/100201385.html
first, I’d have the govt fund a minimum wage job for anyone willing and able to work, which would include healthcare.
and I’d work on supply side bottlenecks, some of which they are already doing.
next, i’d stop subsidizing exports. that would add supply back to the domestic market.
and, of course, I’d redefine banking, etc. along the lines of my proposals on this website.
and i’d move to try to stop them from getting dependent on cars/energy etc.
and put in strict clean air and water standards
etc.
I totally agree, in essence China needs to increase the spending power of its citizens. Unfortunately this is totally at odds with its political system, but I’ll leave that for another discussion.
Also, it is my understanding that the fundamental driver for inflation is energy costs, so I don’t think it’s a coincidence that we’re seeing Chinese inflation pick up during the same year that China became for the first time a net importer of its main energy source: coal.