This tidbit, from a report on impressions of conditions in China, via a steel buyer who has been making the rounds in Asia (hat tip reader Michael) is more significant than it appears. High inflation levels in China (and the powers that be seem to get worried when it goes over 11%-12%) is consistent with the authorities having started to ease up on stimulus, particularly pushing banks to lend.
And high interest rates feed stock market speculation. Interest rates on deposits are low, so the routes for investors to preserve cash are stockpiling commodities (we’ve read various reports of both businesses and speculators going this route) and the stock market. But stocks often backfire as a store of value when too many people latch on to the same strategy.
I was at presentation a couple of years ago at the Asia Society on China, and one of the panelists observed that if you wanted to design a system guaranteed to produce hyperinflation, it would be hard to do a better job. The global financial crisis has provided a wee bit of a respite on that front for China; we’ll see, when world growth resumes, if this view proves correct.
From Steel Market Update:
Construction appears to be booming around Shanghai. A world expo will be held here in May 2010 and there is much construction ahead of the Expo. Funny thing is you see tons of cranes but very little actual work except on the government projects. A high speed train is being built between Shanghai and Beijing. Everything appears very prosperous and the traffic is almost as bad as India….Mill yesterday said that pricing within China has bottomed and is beginning to rebound. Judging by Shanghai this is believable but I don’t know how far this extends.
I have been told that times are really tough in Taiwan….
I have been to some rerollers and have not seen what I would consider excess inventory and the lines have been running. However, there seems to me that there is a similar feeling as the summer of 2008 – everyone feeling that the good times would last forever.
As usual the drivers are the best source of information. The average person in Shanghai area earns equivalent of $500 US per month. The average high rise apt (400 sq ft) is US $100K. So where does the average person live?
There has been a lot in local papers about the govt pulling back from stimulation because of concern about a too hot economy. I am told actual inflation is at 15%. The economy is not exporting.