China sees signs of a past threat: inflation

Historically, inflation has been a major political and economic problem in China as a result of a difficult economy and previous lending by state-owned banks. Both can pave the way for soaring prices and sometimes they have really grown. Inflation contributed to the 1989 protests on Tiananmen Square.

But for nearly a decade, inflation has been of little concern. Years of heavy investment have left the country with overcapacity in virtually every industrial sector, from coal mining to steel to shipbuilding. This makes it difficult for companies producing these products to raise prices. However, this could end as China continues its efforts to reduce overcapacity.

China has also invested heavily in education, so that worker productivity has increased rapidly, along with their wages. As a result, the labor costs of obtaining jobs have changed relatively little, as better-paid but more skilled workers complete jobs faster than less-paid but less skilled workers ten years ago.

That too could change in the long run, while China's "one child" policy, which has now disappeared, and its refusal to have children leads to a shrinking of the labor pool.

China's official inflation figures have been low, but people inside and outside the country do not believe them at all. Western experts argue that the country's consumer price index largely underestimates the effects of the steady rise in housing costs. The index also downplays a number of smaller trends, such as reducing the size of meal portions in restaurants and shifting fashion, they say.

Wigram Capital Advisors, an economic research group, has long calculated an alternative price index for China by taking government data on specific consumer goods and services and assigning them weightings based on actual household expenditures in major economies. Chinese cities. It shows that the annual inflation rate reached 3.6% in July, against less than 2% last year.

Check the Chinese term for "price hike" on Baidu, an online search engine similar to Google, and mentions quintupled during the second half of August. But the use of a more intellectual term for "inflation" has changed little in recent months, a sign that most of the complaints about rising prices could come from less fortunate Chinese citizens, more affected by the costs of inflation. basic like pork and vegetables. .