China faces major inflation problem, stock market down 40% since October

So how does the government get their money? If they don't get money from citizen, they get it from business? Does China have very high taxation on business?

 

The high inflation in China right now is in a way a delayed compensation for years of rapid growth and low inflation. They have had at least 5 years of breakneck double-digit growth while keeping inflation around only 1-2%. That's very good economic management (Feds maybe should take some notes from their Chinese counterparts), but it's also achieved partly through deliberately keeping wages low. That of course has caused social tensions. And the Chinese government has now decided it's time to raise incomes by passing a heavily pro-worker labour law recently. So as the inflation is rising, people's incomes are rising at double-digit pace as well. It's simply a necessary stage China has to go through.

China's stock market is extremely volatile. It more than doubled in a few months last year, and now the bubble has burst. Definitely not for the faint-of-heart.

 

Actually, our mild recession might be the best thing that could happen to China. Both China and us suffers under high raw material cost. If our recession or near-recession is mild and doesn't last very long, it will do wonder to China's overheating economy.

China had been growing like crazy the last 30 years, just when the inevitable economic cycle of hyper inflation might start to wreck their economy, they may get the best gift from an unlikely corner (our recession).

Of course, that is assuming our recession is mild and not long-lasting. If we go into a depression, China will suffer greatly also.

 

Maybe I should have kept my mouth shut, because I am no expert on this.

I know most of China's tax revenues come from businesses, and it's been surging, due to the booming economy, but I don't believe China's business taxation is exorbitantly high, 33% I believe? And foreign and high-tech firms can get tax discounts.

But like I said, I am no expert on this, I can only provide the tidbits of information I know.

 

Agree. Correction is a very healthy thing long-termly. It's time for China to improve efficiency of energy consumption and adjust the whole economy. As for the recession everyone is talking about, it's not there yet according to the definition. Unless we change the definition, the media should stop claiming it.

The trouble is in financial sector as we all know, and it could get much bigger, if the credit market crashes. As strong as Euro is against Dollar, US is still the strongest econmy. I suspect European banks are in much deeper trouble than they admitted.

Hopefully that 520 trillion dollars credit bubble is not going to burst; otherwise, everyone is damned.

 

Very true.

I am not worried by the Chinese economy. Pollution however is another issue. Their environmental problems are pretty bad. The one valid complaint people have had about the Beijing Olympics is the pollution problem, but the claims that it would somehow cause damage to atheletes competing there is way overstated. Otherwise Yao Ming would be dead by now since he trains and competes in Beijing every summer.

 

A temporary pull-back (do they also call it a soft landing?) is exactly what the Chinese are hoping for. Anyone with half a brain knows an economy cannot sustain the kind of growth rate that they have been experiencing in the last 15 years. They know it's time to step on the brake now or it will just set them up for significant drawback in the future. If you have been reading the financial news in Asia, you would know there have been Chinese officials constantly making public comments (and you can guess those are not favorable comments either) about the prospect of their stock market and the economy in the last year. They are getting what they want.

 

Yeah I know what I'm talking about, I qualified it right there. But there is no reason you can't incentivize the directors of a publicly held company the same as a private one. Stock options are just a bonus based on future performance, there's no reason you couldn't do contractual pay bonuses based on company performance benchmarks. The only difference is the stockholders are the People.

I'd guess Pemex is so inefficient by the design of the Mexican people; to spread the wealth to the masses and prevent exploitation. But there is no reason socialized industries have to be inefficient. I really don't understand why Pemex doesn't sell bonds guaranteed by future production and just buy whatever technology it needs from Chevron and Shell, subcontract services from whatever company they need.

 

I don't get your post bigtexxx. No really, I don't. I think there are many problems that needs to be fixed with the Chinese (as well as many other) financial systems, but the current high inflation rate is caused by anything other than the economy going down the tubes.

In case you haven't noticed, the PBOC lowered rates 9 times last year, raised reserve rates 6 times in the same period (I think I actually missed another). In case you also haven't noticed, China had the largest drought in half a century, and the largest storm in half a century all in the last 8 months. They also had an outbreak of pork disease that led to several million livestocks being purposefully destroyed. We are also in a sh1thole in terms of the economy worldwide right about now.

If you look at the data, most of the cost of inflation is due to food price increases and the inability to transport them, due to the disruptions to the road works.

The Chinese stock market's market cap isn't even 5% of the total economy. It is no way represent the health of the entire economy.

All of those effects are temporary, something that is completely different than then current Fed cuts, which could have much longer lasting effects.

 

You sir are correct. This is a home in a small city. The cost of living in a large city is too high for my tastes. I rather stay in America if the cost of living is the same, if not higher. Do you think housing prices will fall or still continue to climb?

 

Not that you may care at this point, but what do you think results when you ridicule a poster who is highly respected?

 

The prices will fall back some, that is just my opion (due to tightening of capital and government funded housing projects), of course it all depending on the location. Housing market is all about location, where do you want to live?