What does it mean and what risks runs the West

For the first time in two years the China experience the deflation. THE prices of goods and servicesthat is, in the country of the dragon decrease in a generalized way and this in fact translates into a Increase in purchasing power.

China in deflation

The latest economic data for China, released by the National Statistics Office, are all negative:

  • import: -12.4%;
  • export: -14.5%;
  • index of Consumer prices: -0.3%;
  • index of Production prices: -4.4%.

The Chinese locomotive slows down for a series of factors: price drop due to one Flexion of internal demand (both consumers and companies), collapse of the real estate marketdecrease in exports And lower consumer expenditure. There is then the Credit contraction towards families and businesses.

So if the economies of the United States and Europe fight against inflation, especially by touching the interest rates, China has the opposite problem: deflation.

In the West there is a generalized increase in the prices of goods and services with a consequent flexion of purchasing power for families and businesses. The opposite occurs in the more robust economy of the East.

Deflation: meaning and risks

Central banks defined a rate of inflation Optimal equal al 2%. Translation: For the economy to be solid, prices must constantly increase by 2% per year. This threshold is indicated how stability index in the medium term and of growing economic.

Deflation, on the other hand, can have deleterious effects, if prolonged over time: deflation can slow down the expense because he can convince consumers to postpone purchases in the hope of a further reduction in prices; The drop in internal demand pushes the companies to slow down production And this immediately translates into a drop in hires or in layoffs. With the companies that limit expenses And investments and a generalized drop in the economy can become The reimbursement of mortgages and loans is more difficult. The minors entrances for the state translate into generalized cuts Which as a rule hit three sectors with greater hardness: welfare in support of the weakest classes, less expenditure for infrastructure and cuts to public health.

Meanwhile, in China the protests of those excluded from well -being increases.

Deflation in China and possible effects on the West

It is now necessary to see what effects Chinese deflation will have on western markets, since the dragon economy is thickly intertwined with that of the rest of the world for the supply of raw materials and for the transformation of products. Already at the end of May one of the recorded effects was the collapse of the price of copper who in the first five months of the year lost the 17%. The petroliumthen, in May and compared to the last calendar year he lost the 50%. The consequence was the collapse of prices for production in western countries.

Western analysts fear above all that the difficult internal situation can lead XI Jinping to give body to the Chinese aims on Taiwan by triggering a war. The military response would give a boost to the war industry and distract public opinion. In addition to representing a humanitarian catastrophe and a failure of diplomacy, a possible China-Taiwan war would also have very serious economic repercussions globally.

This is the apocalyptic scenario that would occur in case XI Jinping should not be put in place an incisive response. But it is unlikely that the aggressive Chinese capitalism does not prepare measures to reverse the course.