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scott666

The Era Of China Exporting Deflation Is Over.

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Oh dear, with China now concentrating more on manufacturing than agriculture they appear to have taken the eye off the ball somewhat. Now they are having to import food to cover the shortfall and guess what? The Westernisation of China doesn't just mean they want to adopt our lifestyle, they want the Western diet as well. Unfortunately their agriculture sector is not geared up for this change and without a viable dairy industry they are now importing a third of the global dairy produce.

BEIJING: Grocery shopping has become a painful experience for Zhang Xueyi.

Meat prices have risen 50 percent in the past year, and eggs and other products are not far behind, forcing the 31-year-old railway technician's family to spend a third of its 3,000 yuan (US$400; €300) monthly income on food.

"If prices go up more, we have to pay. We'll cut back somewhere else," said Zhang as he hefted bags of eggs, vegetables and rice from the market down a narrow Beijing lane.

After a run that has seen sizzling growth top 10 percent for four years, analysts say China's supercharged economy is facing strains that could break out into an upsurge of inflation.

So far the worst damage has been confined to food prices, which jumped 15.4 percent in July over the same month a year ago and drove overall inflation to a decade-high 5.6 percent. But wages are rising too, as are the costs of oil and electric power. Record-setting exports and a stock market boom are sending cash flooding through the economy, stoking demand for goods.

http://www.iht.com/articles/ap/2007/08/19/...ation-Fears.php

Their manufacturing industry is working on slim margins, yet inflationary pressures are starting to filter though. Increases in food costs and wages will result in an end to China exporting deflation to the West. From now on these extra costs will be passed on to Western consumers. Didn't the powers that be just announce they had slayed the inflation dragon? Well the Chinese dragon would appear to say otherwise.

So the downward pressure on world inflation, as a result of low-price Chinese manufacturing exports, that the world has enjoyed in recent years is being replaced by Chinese inflation in wages and also in food prices. And with 1.1 billion Indians starting to clamber up the same food and prosperity chain that 1.3 billion Chinese have been enjoying, there is not much relief in sight.

China's food inflation

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The of china exporting delfation is over.

Rapid and painful inflation to state the obvious. Which a couple of % on the uk interest rates won't be able to control. No more primart and other such super cheap goods.

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Rapid and painful inflation to state the obvious. Which a couple of % on the uk interest rates won't be able to control. No more primart and other such super cheap goods.

Agree totally. Does anyone remember or have a link to graphs showing the cost of goods and services in the U.K.?

It basically showed, a huge increase in the cost of services and a huge drop in the cost of goods during the last decade.

The conclusion was that price increases on imported goods would have a disproportianate effect on inflation.

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Agree totally. Does anyone remember or have a link to graphs showing the cost of goods and services in the U.K.?

It basically showed, a huge increase in the cost of services and a huge drop in the cost of goods during the last decade.

The conclusion was that price increases on imported goods would have a disproportianate effect on inflation.

http://www.bankofengland.co.uk/publication...ort/ir07aug.pdf

Chart 4.1 page 30 of the pdf

Was this the one ?

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The of china exporting delfation is over.

Rapid and painful inflation to state the obvious. Which a couple of % on the uk interest rates won't be able to control. No more primart and other such super cheap goods.

There is another 10 to 15 years of cheap goods yet.

As China starts to move up the value ladder they are already cutting back on the production of the very cheapest goods; toys, shoes, etc.

Currently the main beneficiaries are Vietnam, the Phillipines and Bangladesh, all of whom are moving into boom times.

As long as there are still subsistence farmers living in the world, eagerly awaiting the chance to improve their lives by getting the golden opportunity of working 12 hour shifts in a sweat shop, then the price of cheap manufactures will not rise significantly.

However with India in it's own services / tech boom, this does mean that apart from closed off countries such as N Korea and Burma, that is pretty much the end of Asia as a source of cheap labour.

After them there is still the whole of Africa and a good bit of South America to provide sources of cheap labour for toy factories. But interestingly that isn't very many people. There are only about half a billion people in Sub-Saharan Africa, not all of whom are impoverished. Far fewer genuinley poor in South America.

Africa and S America are already gaining wealth by supplying raw materials and food to China, and are growing economically at their fastest rates for many years.

Much more interestingly, as Chinese production of very cheap manufactures begins to tail off, and it's internal market continues to grow apace, it can only be a few years before China starts importing cheap manufactures. Indeed they are already importing high end luxury toys from Europe and the US.

Until now the rest of the developing world has looked on China as a threat in a zero sum game. Not for long, soon China, and India, will be the biggest importers of cheap goods in the world.

I predict that, as a result, world poverty will end in ten to twenty years, and then the price of cheap goods will indeed go through the roof.

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As long as there are still subsistence farmers living in the world, eagerly awaiting the chance to improve their lives by getting the golden opportunity of working 12 hour shifts in a sweat shop, then the price of cheap manufactures will not rise significantly.

I agree with your analysis, but I want to point out that working 12 hour shifts in a sweat shop is preferable to working 24/7 on a a marginal farm. IMHO It's important to counter the "noble savage" and "happy peasant" lies.

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The of china exporting delfation is over.

Rapid and painful inflation to state the obvious. Which a couple of % on the uk interest rates won't be able to control. No more primart and other such super cheap goods.

How will an increase in the price of milk affect Primark? Are there not other countries that can make clothes for Primark and other super-cheap goods and contribute to disinflation?

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I agree with your analysis, but I want to point out that working 12 hour shifts in a sweat shop is preferable to working 24/7 on a a marginal farm. IMHO It's important to counter the "noble savage" and "happy peasant" lies.

In case it wasn't clear, I agree with you completely, subsistence farming is a profoundly miserable existence. The manufacture of cheap commodities is the only reliable way out of poverty.

Who is China going to sell it to if the U.S. can't buy? They can only sell it now by lending the U.S. the money.

Europe (apart from the UK, RoI and Spain), East Asia, Australia, NZ, the Middle East, and wealthy people in S America and Africa (in return for raw materials and food). And even the US is only going to reduce purchases - it isn't as if nobody in America is going to buy a single Christmas present next year.

The US as a proportion of the world economy is much smaller than it used to be. And most of the rest of the world is doing just fine economically. In fact if a US recession reduces the price of oil, the RoW could actually accelerate economically. The current US recession is going to be the first since Victorian times when the US sneezes and the rest of the world doesn't catch a cold - it is going to be the first time in over a hundred years that the US has a recession by itself.

This is going to be very entertaining.

During the second world war there were only three industrialised countries that didn't get their economic bases pretty much destroyed; Sweden, Switzerland and the US. All three of these countries did very well out of the war, and got a seven year head start on the rest of the world. In their different ways all three became very smug and arrogant in the decades after the war, believing that their own particular take on democracy and capitalism was somehow superior. Amusing, considering how different the three models were.

The Swiss were moved back to mere mortal status when there clock and watch industry was destroyed by Japanese digital equivalents in the late seventies / early eighties. The Swedes became normal europeans in the early nineties when the disruption from the end of communism resulted in a prolonged recession. Both these countries now have 'normal' North European wealth standards, equivalent to Germany / UK / Holland / Denmark, etc. Both have become noticeably less prone to lecturing others on how to run their countries.

Because a US recession has normally resulted in a world recession, the States has managed to maintain it's WW2 head start.

But not this time. Because of it's outstanding debts, the US could face a prolonged balance of payments crisis, and tough economic times until it's real wages have been brought down far enough to make it a competitive producer in world markets again.

The best parallel is the late imperial problems Britain had, when we destabilised the pound as a world currency. A continuous process of economic problems that started with the Boer War and only finished with Thatcher and North Sea oil.

The Vietnam War, and the Cold War in general, was the first sign of this process, when US spending destroyed Bretton Woods. The Iraq War is the end of the beginning of US imperial collapse - the point when the empire can't afford to pay for the armed protection of it's 'own' resources.

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How will an increase in the price of milk affect Primark? Are there not other countries that can make clothes for Primark and other super-cheap goods and contribute to disinflation?

other country's may be able to match china's current manufactured good prices, but unless they can under cut china at current prices, then there is no more deflation, at best prices remain constant.

It's only when prices are dropping that goods are deflationary and offset high inflation in the service sector. This only continues while goods prices are dropping, once they flatline, inflation as a whole takes off.

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There is another 10 to 15 years of cheap goods yet.

Cheap - sure. They'll be cheaper than the West for the foreseeable future.

But if the cost of their goods rises, that means inflation.

Expect some revisions in the way the Chinese Price Index is calculated to massage the figures even further.

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The current US recession is going to be the first since Victorian times when the US sneezes and the rest of the world doesn't catch a cold - it is going to be the first time in over a hundred years that the US has a recession by itself.

I think this is overly optimistic. Spain is heading straight towards bankruptcy as we're writing. Ireland and the UK -- don't ask. Germany -- who will buy all the Mercedes and BMWs, if America does not anymore? China? China are in for the biggest stock market crash in their history, an event that will obtain cult status as 1929 in the US (every nation needs such an event, I suppose). Combine this with the witnessed general inflation and shady banking sector, they will have a huge recession.

No, I am afraid, what we see is the beginning of what will be known as the Greater Depression. Asia will be better off this time, but for America and Europe it will be very bad indeed.

Edited by Goldfinger

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There is another 10 to 15 years of cheap goods yet.

As long as there are still subsistence farmers living in the world, eagerly awaiting the chance to improve their lives by getting the golden opportunity of working 12 hour shifts in a sweat shop, then the price of cheap manufactures will not rise significantly.

With the cost of food rising sharply across the globe after years of underinvestment and migration of farmers to factories.

I think subsistence farming might be a thing of the past. China is a net importer of food which means more competition, Biofuels are having an effect, climate change is reducing annual production of certain commodities and the global population grows apace and will continue to add demand to our global food market.

I'm not sure if we will be able to keep up the demand for any consumption what with this credit crunch.

My bet for what it is worth is that a job making rubbish nobody will buy will not be as good as working the land - after all you can stiil eat the food.

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With the cost of food rising sharply across the globe after years of underinvestment and migration of farmers to factories.

I think subsistence farming might be a thing of the past. China is a net importer of food which means more competition, Biofuels are having an effect, climate change is reducing annual production of certain commodities and the global population grows apace and will continue to add demand to our global food market.

I'm not sure if we will be able to keep up the demand for any consumption what with this credit crunch.

My bet for what it is worth is that a job making rubbish nobody will buy will not be as good as working the land - after all you can stiil eat the food.

Check out page 2: 40% of Africans and almost 30% of South Asians live on less than a dollar a day. That is about half a million people, almost all of these are subsistence farmers / rural landless labourers.

http://www.un.org/millenniumgoals/pdf/mdg2007.pdf

Less than a dollar a day means that soap is an occasional luxury, you wipe your bottom with leaves, your children will probably die of diahorrea and vomiting before they are five years old, and if they survive that they will never complete primary education.

Compared to this, working 12 hour shifts in a factory in a city is shangri-la.

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