http://money.cnn.com/2012/02/16/news/economy/china_chanos/index.htm?iid=SF_E_River
For quite some time, China has been known for its rapid growth and size in the market.They have adopted a "do whatever it takes" attitude as they continue to dominate the market and expand as a country. But has their push for growth occurred too fast? In the past year China reported a 4.5% inflation rate and had a growth rate of 8.9% in the fourth quarter. Some are saying however, that China has understated their inflation by as much as 5% and a recession could be in the future. This high inflation would explain the increase in China's prices. Instead of slowing the inflation, China has focused on increasing spending. Other signs of high inflation are the slow in demand for housing and construction resources. Is China covering up high inflation so they don't discourage investors?
3 comments:
I think that exaggeration of its economic growth and development by Chinese government is very possible, considering its authoritative system and the history of government-controlled media and reports. One good option for China could be, instead of increasing its spending,the government could have raised taxes, which would decrease consumption and therefore lower prices eventually
China is most likely slowing down like many other countries in the world; Japan, the United States, and India. Therefore, this could be a reason that the Chinese government would understate their inflation. The podcast, Romer on Growth, discussed how China was starting out from way behind and how they had large growth in the beginning due to copying, adopting, and importing products and ideas from other countries. Romer stated how in the beginning growth is significantly large, but once countries begin innovating products and ideas then growth decreases. China is most likely moving into the innovating stage for construction equipment, railway construction, and housing sales, and therefore, their growth is decreasing. Additionally, in a previous article on the blog, it discussed how the Chinese yuan was weak, which has caused the government to lose control over inflation. China is not allowing the yuan to appreciate to overcome inflation, which could be another reason for the understated inflation rate if this prediction is correct.
China's focus on constant economic growth has created a massive housing bubble, which looks like it is about to burst. According to the property agency Homelink, new home prices in Beijing dropped 35 percent in November and 40 percent in Shanghai.
The bursting bubble is already sending shockwaves through China's broader economy. Chinese steel production -- driven in large part by construction -- is down 15 percent from June, and nearly one-third of Chinese steelmakers are now losing money. Home sales are down and will likely remain down as buyers wait for prices to hit rock bottom. Without them buyers, local governments have no way to repay the heavy loans they have taken out to fund ambitious infrastructure projects, or the additional loans they will need to keep driving GDP growth next year.
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