China’s New-Old Inflation Paradigm – Mark A DeWeaver

From Asia Times:

The latest Chinese economic statistics might make one wonder if the economy is on the verge of overheating. In the past 12 months, Consumer Price Index (CPI) has risen from 0.8% to 3.3%, while first-quarter GDP (gross domestic product) growth came in at 11.1%, the fifth consecutive quarter above 10%. The last time the economy grew at a double-digit rate for five quarters in a row, from the second quarter of 1994 to the second quarter of 1995, inflation was running at more than 20%. Could the country be about to enter another high-inflation period similar to those experienced in the late 1980s and early 1990s?

In fact, the dramatic structural changes that have occurred in the Chinese economy over the past two decades make such a scenario very unlikely. While past high inflation rates were the result of excess demand, infrastructure bottlenecks and trade deficits, today’s inflation has more to do with money-supply growth generated by balance-of-payments surpluses. China today is more like Japan, South Korea, and Taiwan in the late 1980s, which had inflation in the 5-10% range as a result of large foreign-exchange inflows, than the China of 20 years ago.[Full Text]

-Also see other Mark DeWeaver stories on CDT

April 27, 2007 4:35 PM
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Categories: Economy