China Deflation: We Hardly Knew You.

China economy

In Fondly Remembering a Deflationary China, Economist Magazine discusses how China has moved from being a deflationary force to an inflationary one. At JPMorgan’s recently completed China Conference in Beijing, one of the best speakers I saw was James Kynge (of China Shakes the World Fame), whose talk was on how China had moved from deflation to inflation and how that would impact the rest of the world.

The funny thing about past Chinese deflation was how few people in the West appreciated it. Most complained about the Yuan being too high and about China polluting the earth and subsidizing its factories by allowing ridiculously low wages and unsafe working conditions. The problem with those arguments was that it ignored the huge swath of poor and middle class in the West who were benefitting greatly from reduced prices at their local Wal-Mart or Carrefour. Now that China deflation is history, it is being recalled with fondness.

Be careful what you wish for.

3 responses to “China Deflation: We Hardly Knew You.”

  1. Fully agree. It seems the economic situation is never satisfactory : too much this, not enough that… What exactly are we aspiring to ? A perfectly balanced and stable global market ? Let’s face it, this will never happen.
    I remember, at the end of the 90’s, how everybody was whining about the euro being too weak against the dollar ; ten years later the euro is worth 1.5 USD, and I hear the same people complaining about how the European economy is choking on its powerful currency…
    If I had a very wicked mind I would start thinking that the “economic situation” is nothing but a big smoky concept for politicians to hide their powerlessness. Pretty much like the Chinese menace, in fact…
    Anyway I’m not quite sure the example of consumer electronics prices is the most striking one, for these products are subject to strong variations linked to the regular issuance of new or updated technologies. These variations are likely, I believe, to attenuate the effects of inflation.

  2. I fully agree with the above too. Economies, industries, sectors, exchange rates and also countries tend to go up and down and there is probably also no perfectly balanced or perfectly tuned market or market system or even set of international relations. Change and flux have been and will continue to be the norm. And when you win on one side or thing you lose on another, and then maybe later on vice versa.
    The one thing however that is NOT fluctuating or behaving cyclically and that is steadily only getting worse by the day…(i.e. it doesn’t get worse for a few years and then get much better for a few years after that) is our planetary environment.
    And not only in terms of global warming and the (wild) climatic changes we are already witnessing and that are only going to get worse (and of course we could discuss those forever if we wished, though it seems like lately we’ve finally decided global warming is much more likely to be true than not, and that gambling that it isn’t really happening is neither the wisest nor the most prudent thing in “this world” to do) (particularly since “this world” is the only one we’ve got) And it’s high time that this finally happened since the wiser amongst us have been saying this for at least 40 years.
    And our environment is getting much worse by the day not only in terms of the multiple phenomena of climate change that already are occurring in different forms and kinds nearly everywhere (top Australian agricultural land becoming a desert, melting glaciers everywhere, Bangladesh under water and etc.) (not to mention a few things closer to home -if home is the U.S.- such as Katrina) but also in terms of the loss of biodiversity and species, desertification, deforestation, toxins in mothers’ milk, garbage dumps in the megacities of the planet reaching their limits, fish stocks down to 10% of what they used to be, plastic bags choking albatrosses on Midway island and in some places also running out of water (and having wars over it) and running out of other basic resources (such as clean air and oil, which should be used to make chemicals or plastics and not just get burned)
    That is, we are continuing to trash our environment and use up its resources as though there were no tomorrow and nobody else to come after ourselves. And so no tomorrow is what we may indeed end up getting.
    At the same time we also seem to be throwing our hands up in the air because we need that 3% minimum of economic growth per annum just to keep up with rising population and employment and also because it’s “good for business” and good for overall prosperity.
    But how good is it going to be either for business or for the rest of us when we run out of resources and when our physical and natural environment has been completely and irreversibly degraded or trashed? And just because we can’t always see the effects of the degradation right in front of us does that mean it isn’t happening or that we can wait to do something about it? And what about the proverbial frog who doesn’t jump out and whose goose is eventually cooked when the temperature of the water that it’s sitting in, is only turned up slowly…until all of a sudden it’s boiling?
    Isn’t it perhaps time that we started to take some of these problems just a bit more seriously than only getting together once in a while to agree that yes, indeed, we will reduce our rates of growth and emissions by about .0001% by 2050? (which is what agreements like Kyoto are more or less about) And where are the concrete national governments and international community mega plans to convert all of our economies from fossil fuels in time? (apart from the solar panels in the Sahara that are going to presumably at some point power part of the EU)
    And shouldn’t we also stop all the sophistry mathematics and the self-delusions (and the deliberate deception of others) that say that if we were just to employ more “cleaner and more efficient production” methods and systems that this is going to solve the problem? (when we know damned well that it won’t be enough?)
    And why aren’t Fox and CNN hammering day in and day out these kinds of messages instead of discussing whether Hillary Clinton is the B. word or Obama agrees with his pastor or not, or is a Muslim instead of a Christian? Or for that matter whether Tibet should rule itself or be run by China? There soon will be no glaciers left in Tibet whether it is run by the D.L. or by China or by anyone else.
    I personally think it’s high time to get a lot more serious about the environment across the board or we’re all going to live (or die) to regret it. The solutions are out there and all we have to do is get off our collective fannies and implement them. (and one of the solutions BTW is China’s one child policy which I think should be seriously considered for implementation nearly worldwide)

  3. True.. I’m just amazed at how people consistently show their lack of a basic grasp of free market economics. I guess that’s what the Lou Dobbs of the world count on to sell their Kool Aid. I’ve always promoted the idea that a yuan tied to the dollar benefits us, and hurts the Chinese. Contrary to what politicians say, the deflationary effect has also benefited the lower income in this country the most.. now they’ll be hurt the most.

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