Inflation may be forcing China to let its currency appreciate

In “Beijing turns to currency to cool inflation“, the Associated Press gives a good summary of China’s current problems with inflation, including the following:

“Economists blame China’s inflation on the dual pressures of consumer demand that is outstripping food supplies and a bank lending boom they say Beijing allowed to run too long after it helped the country rebound quickly from the 2008 global crisis.

Attempts at price controls, subsidies for the poor and orders to local leaders to guarantee adequate vegetable supplies have had mixed results.”

The failure to control inflation to-date is forcing China to allow the currency to appreciate faster. The near-term increases still seem modest at 5% (against the dollar), so it will be interesting to see whether China continues pushing harder on non-currency methods.

China’s currency is not traded on open markets, but if it were, it seems the currency would soar given current conditions.

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2 Comments on “Inflation may be forcing China to let its currency appreciate”

  1. Brewskie says:

    I think with the declining housing prices, China is entering a critical period where we’ll find out if the China bulls, or China bears will be correct. The optimists say with “declining prices, more Chinese will be able to afford the home they want”; for for the pessimists’ side Andy Xie has several recent pieces with a dour look on China’s tightening measures.

    The amount of vacant property in China is astounding – what confronts her is simple: if she can fill her vast amount of vacant malls and shopping centers, vacant office and condo buildings, her scenario becomes easier; if not, she’s going to inherit the mother of all real estate bubbles. The latter becomes gut wrenching when one learns China has entire cities empty – some for years after completion.

    I predicted America’s crisis, plus the high unemployment that would persist afterward, in ’04; I think China’s meltdown will come within 2-3 years.

    • Dr. Duru says:

      It certainly seems like all this capital investment can’t possibly be put to use for many, many years to come. I agree that China is rapidly approaching the “point of proof.”


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