With inflation in China staying at steadily high levels over the past months, complaints surfaced in the west that China’s reckless monetary expansion and rising labor costs pushed up inflation which could spill over to the rest of the world.
Beijing-based economists, however, said that some people in the west distorted and misread China’s economy, and what they complained about were inconsistent with facts.
Actually, China is also a victim of global inflation, which is mainly caused by America’s ultra-loose monetary policy, they said.
To ward off the negative impacts of the global financial crisis and avoid a sharp economic slowdown, China implemented a 4-trillion yuan stimulus package at the end of 2008, which included significant bank loans.
The stimulus measures were hailed by most countries in the world as a timely boost, not only to the Chinese economy but also to the global economy.
The measures did help keep the Chinese economy growing 9.2 percent in 2009 and 10.3 percent last year. However, negative impacts also emerged as the monetary expansion, which highlighted more than 1.8 billion yuan of new loans, also sowed the seeds of inflation.
But is it serious enough to worsen global inflation?
Guo Tianyong, a professor with the Central University of Finance and Economics, said that since the yuan is not a global reserve currency, its domestic monetary expansion could hardly spill over to the outside.
The global commodity price surge is due to the U.S. quantitative easing monetary policy and the low interest rates by some developed economies, said Li Daokui, a central bank monetary policy advisor.
On February 24, crude prices in the New York market hit 103 U.S.dollars per barrel, while prices in London hit 119.79 U.S. dollars. The prices of gold, cotton and other commodities also soared.
Zhang Xiaojing, a researcher with the Chinese Academy of Social Sciences, said that the global excessive liquidity not only pushed up commodity prices but also intensified the inflation pressures for emerging economies by attracting more inflow of speculative money.
To cope with the imported inflationary pressure, many emerging economies hiked interest rates. However, the widening rate gap only served to attract more “hot money” .
Chen Fengying, the director of the World Economy Institute of China’s Institute of Contemporary International Relations, said blaming China for exporting inflation helps some countries shun responsibility for global inflation.
Over the past decades, China’s economic boom has largely been built on cheap labor and excessive use of resources. But a new generation of migrant workers demanded higher pay and better treatment, which could add costs to China’s export products. That was also cited as a reason for China’s role in pushing up global inflation.
Chen Fengying said that rising labor costs in China is conducive to upgrading labor-intensive economy in the country. It is also good to rebalance China’s foreign trade to benefit the world economy.
Although China faces a daunting battle against inflation, economists said that inflation would not spiral out of control.
The Consumer Price Index (CPI) hit 4.9 percent in January, which was near a 28-month high of 5.1 percent in November.
Yao Jingyuan, a chief economist with the National Bureau of Statistics (NBS), said that the chances for hyperinflation in China are slim due to the country’s bumper grain harvest for seven straight years, its overall balanced industrial market and overcapacity of production in some sectors.
Since inflation would not exacerbate matters domestically, how could it spread to the world, argues Chen.