Can the United States’ high inflationary and low interest rate policies help China to grow even more? As we know how the United States is trying to keep the inflation rate high and interest rate low to promote consumption spending and bring in more revenues for government agencies. United States is doing this while also cutting back some spendings in general, because the United States needs to deal with both huge foreign and internal debts and the interest of the foreign debts. As United States prints more money to keep inflation rate high, this affects China’s inflation rate big time.
Why? China’s Yuan is still pegging to the Dollar, and so China’s inflation rate is probably shooting up really high when the inflation rate in the United States skyrockets. As China’s middle class is growing in astounding number, China’s middle class is sure to have a lot of cash to spend. Although Chinese tradition is to save more and spend less — Chinese had been poor for a long while since the downfall of China’s ancient kingdom and during Mao’s time — with more money Chinese people are sure to be able to afford better modern accommodations. As in the United States, high inflation may encourage Chinese to spend more since they may fear that prices are keep climbing for the accommodations (e.g., household items, cars, furnitures, electronic items, smartphones, etc…) that they need.
In the time that the Chinese are having a lot of money, they are sure going to spend for whatever that they must have and need. With the high inflation rate in China to boost the domestic Chinese consumers to spend even more, Chinese internal market may heat up even more and growth in consumption may as well skyrocket. This in turn will boost firms and companies from abroad to bet even bigger on the Chinese market as Chinese market is set to grow a lot higher in term of consumption lead.
Unlike the United States in term of forgoing home manufacturing capacity, China may boost consumption even without letting go home manufacturing capacity. Why? Out of 1.4 billion of people or so, if I’m not wrong on this China’s middle class is roughly around 300-400 million of people or so, and so around 1 billion more Chinese are still working their way toward becoming the new middle class citizens. With so many more Chinese that aren’t yet achieved the middle class status, they’re sure working hard in the home manufacturing based entities/market in hope of making a better living. This is why China may not yet be able to forgo the home manufacturing capacity for cheap labor is still possible in China’s poorer areas.
Meanwhile, China may try to boost their service sector to grow even more to compete with foreign service industries. On the top of all of that, China doesn’t need to print so much money as the United States to boost inflation rate, because the United States’ inflation rate alone is already pushing China’s inflation rate up. I think China’s market will grow even more as the United States prints more money to boost the inflation rate at home. The question is if the United States decides to tapering, what will happen to the markets and economic growths in China and the United States?