China's "fastest-growing export"

Beijing's fastest-growing export is inflation
The emergence of China as a commercial superpower is, by some way, the most important economic phenomenon of our time. In the last few years, analysts of the global economy have had to rewrite their computer models and recalibrate their slide rules to cope with the People's Republic.

Were those computer models once based on decades of China's previous fastest-growing export: deflation? Oh oh.

That poses challenges enough for the rest of the world. But, until recently, Western economists were able to reassure themselves that at least the People's Republic, while almost certain to up-end the existing global economic order, was helping to tame inflation.

Expect more Western economist group hugs in the coming months, well, maybe. They are going to need all the help they can get (assuming the global economy doesn't fall apart first, which is not the best of assumptions perhaps).

Chinese manufacturers are indeed battling not only with higher energy costs, but rising wage inflation. As the authorities try to encourage the production of more sophisticated goods, there is an increasing demand for skilled labour - which, despite the vast workforce, is in short supply. That's one reason why wage inflation rose to nearly 20 per cent in the first quarter of this year.

Time to slap some more lipstick on the "40,000" pig excuse story I posted earlier. It seems to be dwarfed by the 20% wage inflation story to explain the inflationary trends. Just a hunch.

At the same time, faced with rising social tensions, the Communist leadership is now taking steps to strengthen labour laws - again, pushing wages up.

Always underestimate the power of "rising social tensions" in a country with a billion or more people. No wait, never, never underestimate. I was starting to think like a Western economist again. Sorry about that!

After all, the end of the benign China effect on global prices - hastened by a rising Chinese currency - could well give the West an inflationary problem of its own. And that will seriously hinder the ability of central bankers to administer restorative interest rates cuts.

Hey, where is Greenspan when you need him?

Remarks by Chairman Alan Greenspan, 2004
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

Hindsight just isn't being kind to that paragraph these days, and on many different levels (heckling fear? pushing mortgage product alternatives? underestimating potential inflation? underestimating interest rate risks?).

Western economist, whatcha gonna do? Watcha gonna do when they come for you? Bad boy! Bad boy!