Tuesday, July 10, 2012

China's Economy Continues to Slow--May Be Facing Deflation

Walter Russell Mead notes a couple news stories--one from the New Yorker and the other from the New York Times--reporting continued declines in demand for Chinese products and falling consumer prices in China. The latter should be particularly concerning because it could turn into full-fledged deflation. It also has implications for political and social stability in China:
Via Meadia is less concerned about a temporary Chinese slowdown, whether the landing is “hard” or “soft” than we are about the prospect for a phase change in Chinese growth — a secular slowdown in growth as the Japan-style export led strategy reaches natural limits. But the shrot term fate of China’s economy has a lot of influence over what happens in the rest of the world given our shaky circumstances right now. And China watcher Evan Osnos offers some sobering observations in the New Yorker:

Already, Nike says that its Chinese stockrooms are piling up with inventory. Similar complaints are coming in from McDonald’s, Caterpillar, and Procter & Gamble Co. Within China, the stakes of a slowdown are high as well: for half a century, political scientists have recognized that political unrest does not tend to erupt in places that are most deprived; it hits when a pattern of rising growth and expectations abruptly stops.
Read the whole thing. (H/t Instapundit).

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