China's leadership: caught between inflation and deflation - Paul Denlinger

Paul Denlinger

Cooling down inflation, stiff rising wages: China's leadership has a hard time to steer between two evils, writes business analyst Paul Denlinger in Forbes. Things do not look well for the new leaders in 2012.

In effect, Beijing is trying to repeat what the four dragons (Taiwan, South Korea, Hong Kong and Singapore) did when oil prices went up in the eighties: it is trying to move to higher value-added industries. But because China’s production base is so large compared to those economies, it raises another question: Who is going to buy all those nice new Chinese products? The export markets of the US and Europe have largely disappeared after the Wall St. meltdown of 2008, and the new Chinese middle class which was going to become the savior of the world has not yet appeared...

In 2009 and 2010, China looked like a genius for its bold action with a stimulus package and investment in infrastructure. In 2011 though, it looks more like China bought extra time for the US economy to recover and US consumers to start spending again. But waiting for Americans to start spending like before is looking more and more like “Waiting for Godot”. But what about China’s middle class? China already has more than 1M persons with individual net worth of more than US$1M, and Chinese are now the leading buyers of luxury goods worldwide.

In fact, these are the people who have made it, and are now buying real estate in the US, Canada, the UK, and Australia. Many of them feel more secure flaunting their wealth overseas and retiring overseas than in China, because they don’t know how the political winds in China may change...

In 2012, a new leadership will come to power in China. In China, these power transitions are carefully orchestrated so that the new leadership can come into power at the best of times, strengthening the legitimacy of the government and party and showing their power in a positive light.

For the first time in the past 30 years, the stars are not lining up the way they should.

More in Forbes.

Paul Denlinger is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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