Total new financing in January reached Rmb2.5tn ($400bn) – up more than 50 per cent from December and more than double the figure a year ago – eclipsing even the start of 2009 when China unleashed stimulus spending to battle the global financial crisis.
There are suggestions that this will stoke inflation in China, which may well be the case, but the real longer term issue is whether the country’s long term growth trajectory is now beginning to slow down. Commentators such as The Telegraph’s Ambrose Evans-Pritchard have discussed the so-called “Lewis turning point” and applied it to China. The Lewis Point, named after St Lucia’s Nobel economist Sir Arthur Lewis, is when the supply of workers dries up and city wages soar. It is when labour turns the tables on capital, and profits crash....
Why does this debate matter? Because this will have major implications for the Chinese domestic economy and the world economy. If we are in fact close to the Lewis turn point, it means much higher inflation. Without the endless stream of excess rural labour, wages are going to go way up in China and this means inflation will be a problem. Add to that the current makings of another credit bubble and it could become a very mess[y] challenge for China’s new leadership.MacroBits
Inflationary winds in China?
Marshall Auerback
(h/t Kevin Fathi via email)
