By John Richardson
LABOUR markets are tight in China and so on the surface there appears to be no great pressure on Beijing to attempt to export its way out of an unemployment crisis.
But what happens if, as we suspect, real GDP growth has fallen to 4% or even lower? The government, despite its firm commitment to economic rebalancing, might be forced to once again boost export competitiveness.
A hint that this might be on the cards appeared in the state-run Global Times newspaper earlier this week.
“The Chinese Yuan has limited room to appreciate further and may be depreciated to foster the country’s struggling exports and the broader economy, according to experts and insiders,” wrote the newspaper.
Aggressive monetary easing by the Federal Reserve and, more recently, the Bank of Japan, were cited as reasons why the appreciation of the Yuan might be reversed.
The massive stimulus programmes of both central banks have depreciated the values of the Dollar and Yen, and, as the Global Times also points out, have also caused capital inflows into China, thus pushing up the value of the Yuan.
The approach of Western central banks looks set to continue, even though there is no prospect of it reviving demand.
And so China, boxed into a corner, could be forced to respond, resulting in a global trade war as it exports deflation via its many heavily oversupplied industrial sectors, including chemicals.