Tag Archives: macroeconomics

The Double Concern Of Western China’s High Inflation

Here is an example of the glaring weakness to monetary management by administrative measures. The central bank is trying to cut off inflation-stoking bank lending by reducing the quantity of money available to be lent out. Hence the hiking of banks’ reserve requirements and guidance to banks on where to lend. However, western provinces are exempted because of another of Beijing’s policy priorities, development to reduce wealth disparities with the eastern coast. That means lending for capital intensive natural resource and infrastructure projects. Meanwhile, direct subsidies and other welfare transfer payments for healthcare and housing continue. The result of this torrent of new cash flooding in: the inflation rate in most western provinces is now running above the national average of 5.4%. It is more than 9% in Ningxia, Qinghai and Tibet and more than 6% in Sichuan and Gansu.

The provincial inflation figures may underestimate the problem. (We would probably be more surprised if they didn’t.) In Ningxia the minimum wage was raised at the start of April by 24.9%, eye-popping even by the standards of some hefty minimum wage hikes that we have seen over the past months. Local officials said it was to accommodate rising living costs. At the other end of the country, there are signs that inflation is starting to cool, notably in the northeast, around the Bohai rim, a harbinger of the national inflation rate slowing its growth during the course of this year. The west will be on the distant trailing edge of that arc. Ningxia and all the western provinces are those that most worry Beijing when it comes to social stability. Persistent inflation will only double that concern.

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