Posted on 11/30/2005 7:53:28 AM PST by TigerLikesRooster
Commentary: China flirts with deflation as economy cools
By William Pesek Jr. Bloomberg News
WEDNESDAY, NOVEMBER 30, 2005
Anyone notice how quickly "overheating" has been dropped from investors' China lexicon? In the annals of word-disappearance cases, it merits a mention.
"Not long ago, overheating was all anyone could talk about," said John Chan, managing consultant at Shanghai-based China Streetsmart. "Now, fears of China getting too hot rarely come up."
Give credit where it's due: Chinese officials seem to be pulling off an orderly deflating of their nation's economic bubble. Along with this year's deftly handled 2.1 percent revaluation of the yuan, the feat suggests leaders in Beijing know what they are doing.
The risk is that China may be flirting with the opposite of overheating: deflation.
Sound like a reach? Not to economists like Andy Xie of Morgan Stanley. He's eyeing a scenario in which Asia's No. 2 economy experiences falling prices as soon as next year. The reason: overcapacity. China is still producing too much cement, aluminum, textiles and other goods. It's also constructing too many factories, buildings and resorts.
Officials in Beijing have used administrative measures to reduce overinvestment. Doing it slowly to achieve a soft landing means capacity growth remains high, causing an oversupply even when China's annual growth of more than 9 percent slows.
(Excerpt) Read more at iht.com ...
Ping!
China will have its day -- and overcapacity will be a major issue.
Don't they need to build inland areas infrastructure? If yes, it could absorb quite a lot of cement/steel/energy overcapacity.
SO, if there is deflation in China, what happens on this side of the pond?
No problem.
Just drop some Yuan from helicopters!
We won't be able to buy cheap junk nor finance the 50 bazillion square foot home anymore. We will find a way to live within our means.
Of course it does. Read my Chinese tagline.
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