China Growth

The NYTimes came out with an article today suggesting that internal growth in China shows signs of slowing, though their Exports continue to grow. The Article implies this will make the Chinese even more resistant to allowing the Yuan to float. Part-Right and Part-Wrong.

China faces a huge Cash-inflow from her production of Exports. She, and the other Asian nations, cannot permanently continue the practice of buying U.S. Treasuries. China's huge level of Export production is propelling Wage inflation throughout the internal economy. Her tight Credit control can only delay internal inflation. Prevention of internal inflation requires absorbing the increasing Wages of the Export industries. A Black Market will expand in China, unless Chinese leadership enters into a program of interior development.

Floating the Yuan will retard this Black Market, which expresses almost total freedom from other forms of Market and Currency controls. The primary feature of Black Market effect in tightly controlled economies is the development of the Double-Pay package, where Labor is paid a regulated and accounted Pay, but alongside an under-the-Counter unaccounted Wage. Businesspeople get accustomed to carrying around a bag full of Cash to do business. The initial Chinese Bank scandals indicate the Double-Pay package already thrives in China.

China has to start internal development with switch of Chinese production from Exports to internal consumption, or confront a worse Inflation than an over-spending Federal Government could produce here. lgl