The reality, in China as everywhere else, is that only the price of credit controls demand. bq. Annual inflation of 5 per cent would eat away steadily at the real value of government debt and the bad debt mountain held by banks. The authorities may be willing to take the risk that, in a high growth economy, moderate inflation can be managed without causing problems.(“Financial Times”:http://www.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1087373128532&p=1012571727102) There are strong signs that inflation is no longer ‘moderate’ in China by the standards of other economies. Question is whether that ruler can be used in China where labor supply is still abundant and export competitiveness still very strong.
Peter Gallagher is a leading Australian consultant on trade and public policy.[bio].
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