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Monday, May 9, 2011

China happy yuan is appreciating

The paradox is when being forced to a seemingly disadvantaged position and being accused of suppressing the power and demand of the yuan, the only way out is to join them. Can't beat the propaganda? Then let go. Zen like. Set free. Give what the opponent wants.

And that is what China had been pushed into doing. Doing it indeed so well and have included it in their 5 year economic plan. Let the yuan rise and appreciate to mitigate potentially rising costs of commodities, and daily commodities like sugar and cooking oil. With a stronger yuan, there is a cushioning effect. Plus the citizenry will feel mature economically and have a better purchasing power, and a means to look forward to the future, and retirement. As well as enjoying their life and perhaps a bit of travelling overseas. Travelling even to the next province 20-30 years ago, wasn't even a luxury for most of the low and average earners. It was perhaps even forbidden.

Now, travelling is something an adventure or a "I've made it" signal that everyone wants to fulfill. With budget carrier AirAsia spearheading the route expansion in China, cities like Hangzhou, Guilin, Tianjin - reap the "reward" of choices of travel.

Inflation happens everywhere globally. And the minor 5% appreciation against the US Dollar has able to cushion some form of the negative effects.

In general, inflation is a double-edged sword. Most common folks would equate inflation in the "bad egg" category. But is it? Inflation will cause prices to rise for goods. But in the macroeconomic sense, inflation is a healthy indicator that the cranks and belts are grinding in the economic machinery that causes enough friction to generate inflation.

Another way to see it is does any country hope or wishes for deflation, supposedly the opposite of inflation? No. Think Japan. One of the most powerful and efficient economy today. Deflation in their economy has been frowned for for years. Prices are depressed downwards. Consumers spend less locally. They still spend alot more compared to foreign countries simply because of their purchasing power parity and magnitude. But not textbook economic enough to propel their growth. And that is another portion of the chase. Economic growth. Although personally I see it as a ridiculous chase that will eventually kill the Earth, every country wants economic growth and usually measured in GDP growth.

So back to inflation. It is also a sort of general sweep tax to all and sundry. Inflation of say the cost of petrol (oil), will affect every level, every person and every system within the country that is having that inflation. Cost of travel be it bus or car will rise. Cost of food and meals will rise because they are transported using those vehicles that in turn uses fossil fuel - petrol and oil.

The last laugh alas is a Chinese laugh. For years the United States propaganda was to discredit China even knowing that it is so much more an arduous task to manage over a billion in population with the majority in the low income group, with facilities and infrastructure that is racing to be upgraded to world standards. And the mockery and criticism of supposedly yuan manipulation broke the camel's back in a zen way. China's economic policy accepted whatever was criticised. Take it. Factored it in the economic data and projection. Accepted it. Then made sure now the YUAN will appreciate.

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