Xie and Roach: China Should Worry About Inflation

On the back of 10+% growth in 2010, it is now apparent that China has a burgeoning inflation problem. A whole confluence of factors may come into play here. A labour shortage in China, food price inflation, and out of control money supply growth all are impinging on consumer prices. It should be noted that the currency peg is partly responsible for importing inflation into China via the Fed’s quantitative easing.

Former Morgan Stanley Asian Chief Economist Andy Xie has long talked about this. Yesterday, he was on Bloomberg warning that China needs to pay much more attention to inflation than growth if it wants to prevent a hard landing from its asset bubble. 

And Xie is not the only one warning of this. Now, even China bull and former Xie Morgan Stanley colleague Stephen Roach is worried that inflation is well out of hand in China, saying it "borders on being a serious problem". Indeed, consumer price inflation is now running over 5%. I like Stephen Roach’s analysis about consumer-based economies being aspirational in nature. This pre-supposes a different approach on human rights if China wants to make the next move in its evolution.

Very good Roach video below – quite extensive and runs 15 minutes. Note that Roach takes a more hawkish view on the trade tensions between the US and China than I have in recent weeks.