What I see is more evidence of an inflation problem in China that they are now trying to blame on something other than themselves to prevent the historical regime change from inflations of the past.

The problem is, of course, the don’t fundamentally understand how a currency works, which reduces the odds of being able to reverse their inflation without a recession.

Beijing’s Focus on Food Prices Ignores Broader Inflation Risk

By Keith Bradsher

November 17 (NYT) — Zhou Xiaochuan, the governor of the central bank, had said earlier on Tuesday that the amount of money racing through the global economy was putting pressure on emerging economies that want to control inflation. And Yao Jian, a commerce ministry spokesman, said at a press conference on Tuesday that the government would tighten scrutiny of foreign investment so as to prevent too much money from pouring into China as foreign investors seek higher returns than are currently available in the West.

Imposing price controls and other administrative controls on the Chinese economy runs counter to the steps recommended by many Western experts. They have suggested that China should further deregulate its economy, let the renminbi appreciate and otherwise rely on market forces to tame inflation.

2 Responses

  1. Too much confusion in their monetary operations actually helps our position – or would if we knew how to leverage it.

    Yet, anything “recommended by many Western experts” hasn’t been a sound investment lately. Seems like their entire “revolution” is being sucked back into the banking peloton of freewheeling bankers.

  2. The Chinese government will take every opportunity to blame foreigners for inflation (and any other problem that crops up) this a well worn strategy.

    It is widely believed in China that QE2 has caused the current increase in inflation. The reality is that inflation is being caused by an increase in energy costs. Also because agriculture now uses much more energy than it once did as a result of modernization, food prices are now largely a derivative of energy prices. Taken together, food and energy make up most of the increase in the CPI.

    Some more data points: I spoke with a cab driver here in Shanghai yesterday about the rumored across the board fare increase from 12 to 15 yuan and he said if it occurs it will be to offset higher energy costs. There is also news that several major domestic oil producers have been caught selling at prices above the allowed level.

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