A blog on Chinese economy & society

Stagflation in China

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A new research note from Wu Qing of the Development Research Center of the State Council, which is a key government think tank. I can’t find anything in English, so you’ll have to bear with my translation.

Chinese economy is moving from a temporary high growth, low inflation period towards stagflation. Economic data of May pretty much confirms this.

The inflation call is hardly surprising as many have noted that inflation is being transmitted downstream. What’s more interesting is the call of rapid slowdown of growth.

Since the major economies of Europe are not competitive in labor intensive products and the euro has depreciated against other currencies besides the RMB, Chinese exports to Europe may not suffer too much.

What could possibly impact Chinese exports is the rapidly escalating wages. …14 provinces and cites have hiked the minimum wage by an average of 20% this year, with 10 more to announce soon….

The IMF raised Chinese forecast GDP growth to 10% in April. However, Chinese economic growth is trending downwards, from 11.9% in Q1 to perhaps only 8% in Q4. Without new stimulus, growth may drop below 8% during the first two quarters of next year.

He sees inflation to peak in H2 this year but may lingers till early next year. Coupled with the expected slowdown in growth, China may see its first bout of stagflation in H1/2011.


Written by Cindy Luk

June 14, 2010 at 2:43 am

Posted in China, Macro

Tagged with , ,

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