The communist central government in China is starting to sweat a slowdown in the national economy of the world most populated country. It has begun to dawn on them that the "law of large numbers" will make 10% GDP growth every year somewhat difficult.
Chinese economists can see a drop in consumption in the big countries especially Japan, the US, and most of the EU.
The easy solution to China’s GDP problem is for the government to throw liquidity at the system. A loosening of bank lending practices would make the nation awash in cash.
According to Reuters, "rushing into a fiscal stimulus, a hot topic of late, could make the economy a bubbling cauldron of unstable growth and inflation."
In a sense, China is joining the club of other large national economies. The two-headed coin of inflation and easy credit has been a challenge to Western governments for decades. Rising wages and a lack of housing and consumer goods allowed the US to enjoy GDP growth without insane inflation for more than a decade after WW II. US inflation rates in the 1950s averaged in the low single digits.
While inflation in China does China little good, it may be an even larger problem for the US. The question has already arisen as to whether the China can be a low-cost producer of exports for the American market Each day that options become more remote the likelihood of inflation in the US improves. No other nation has enough manufacturing capacity to replace China’s output at lower cost.
A cold in China is a flu in the US.
Douglas A. McIntyre
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