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Thread: China adjusts its monetary policy

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[quote=APAULT,258775]Certainly the Chinese economy is overheated.  How can it be that it is growing TOO fast?

Unfortunately there is a limit on how fast an economy can grow over an extended period.  Every new factory, every new school or whatever, needs skilled and experienced staff.  This is simply not available.  Buildings and factories need materials but  they cannot be supplied.  In the short term China has hired foreigners, but that is expensive and is only part of the solution.  China needs iron and coal from overseas, but not only have market forces pushed up the prices, but Australia (for one) is unable to upgrade its infrastructure fast enough to ship out the raw materials - ships are waiting offshore unable to load.

Overall there is competition for limited resources so prices rise.  Rising prices have many repercussions.  At the simplest level workers wages are reduced in real terms.  If we raise their wages the cycle of inflation continues, if we don't the workers become restless... and we don't want that.

So, yes, the government must tighten things for a while, give market forces a chance to settle down across sectors, internationally.  Done early there should be minimal suffering, left too long and we see sudden changes that cause unemployment and much reduced profits.[/quote]

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