China Gets Normal

China was supposed to be falling apart. Inflation was more than 10%. Labor costs were rising rapidly. The central government jacked up gas and diesel prices. The apocalypse was just around the corner.

What a difference a month makes. Consumer prices rose only 4.9% in August which would put China in a class with the US.

The improvement in how much the cost of things on the mainland is going up did not hurt the balance of the Chinese economy. Exports slowed, but the rate of improvement still has to be the envy of the rest of the world. According to the FT, "Exports increased by 21.1 per cent in August."  While that is slower than the year before, it should keep sharp improvements in China’s GDP on a fast track.

What is happening in China does not even qualify as being described as a "soft landing". In reality, it is no landing at all. GDP improvement in the US, Japan, and the EU may have disappeared this quarter. The fact that the trend has not spilled over into the world most populated country is a puzzle.

The key to the lock is that in a recession in some of the world’s largest economies, the demand for low-priced goods may actually move up or at least remain in a steady state. "Cheap" is in vogue when the man on the street cannot afford Gucci and Ralph Lauren.

While the cost of goods out of China may have risen some over the last year, it is not enough so that its relative advantage has been undermined.

China is doing fine. The envious hoped that would not be true. They prayed for evidence that China was just like everywhere else.

Douglas A. McIntyre