Alan Hands

ECON 333 China Inflation Article What I found most interesting about this article was the notion that despite all we have read in the news and anticipated over the last number of years, China may have some serious economic problems of their own. China s inflation fight threatens their economy and there are serious underlying questions such as: is their current economic model of constantly undervaluing their currency a sustainable economic model to follow? Inflation has arrived in China and many economists predict that they will not be able to tame rising prices anytime soon. I found it interesting that the article stresses at the end how American importers of Chinese goods will feel the squeeze the effect to the American consumer may be subtle. The biggest impact on the consumer will be in China itself. As China s booming economy enables more of its own citizens to buy the goods pouring out of its factories, Chinese consumers are feeling inflation directly. As we have seen in Egypt and Greece, these economic problems may cause social unrest in China, so officials in Beijing are understandably worried about the current situation. What I also found surprising about this article was the knock on effect this may have to the banking sector in China. The central bank has been pumping out currency at an everaccelerating pace over the past decade to limit the Chinese renminbi against the dollar. This strategy has helped preserve a competitive advantage of Chinese exporters by keeping their prices relatively low on global markets. Money supply figures for December, which the central bank released recently, showed that cash and bank deposits were increasing at a rate twice as fast as even China s soaring economy. The whole world will be keeping an eye on this Chinese situation as it threatens to spiral out of control. The true question will be asked after events over the last 2 years. Will the Chinese Economy be the next nation to crumble as a result of the Government s poor & unsustainable economic policy, like Greece, Iceland & Ireland among others? Only time will tell.