Tuesday, December 07, 2004


We Don't See Anything Under 5%

I've noted before that I disagree with those who expect a quick revaluation of the Yuan vs the Dollar at some point, and that I think it will instead be a gradual process, lessened considerably by China's debasement of its own currency. I found this passage particularly telling:

A financial expert said he sees no grounds or possibility for soaring inflation this year or the next as China’s economy, though growing fast, is developing on a healthy track.

Against the backdrop of anxiety about the upsurge of consumer price index (CPI) from the public, Li Yang, director of the Financial Research Institute under the Chinese Academy of Social Sciences, assured that China is unlikely to suffer from comprehensive inflation at present.

Generally, inflation is considered possible when the CPI reaches over 5%. [my emphasis]
So inflation is only possible if it reaches over 5%? Nothing less than that even counts? At the current 4% rate, for example, their purchasing power would be cut in half by 2022, all by an inflation that is not even possible.

By the way, as GaveKal (link unavailable) has noted:
all over the Pearl River Delta, and in the Yangtze River Delta, a number of factories have had to deal with striking workers, asking for increases in pay from the usual RMB600-700/month to a slightly less inhumane RMB 1000/month. That's a hefty 40% increase in some cases!
China has labor shortages of its own to deal with and that means the era of the dollar-a-day peasant is rapidly ending. The only way they can avoid inflation is if most people continue to work for next to nothing, but I bet the people have different ideas.