While China has been outspoken in expressing concern about the United States printing too much money, those worries might be better focused at home. No country beats China when it comes to effective monetary easing.
Beijing has scrapped lending quotas, adopted a loose monetary policy and kept interest rates at a four-year low to boost liquidity and promote growth. The policy has worked. China has lent out more money in the first four months of this year than the whole of 2008. Money growth in China is up more than 25 percent this year, versus about 10 percent in the United States. Click here for a related graph.
Beijing’s “monetary emissions” will have major consequences, and China might suffer from inflation before other countries in the world. The flood of liquidity that has been injected will almost certainly overwhelm the country’s seemingly indestructible overcapacity. History has shown that China can have inflation even during times of severe overcapacity, such as in 2008.
So far, China remains in a honeymoon period. Cheap money is sloshing about but thus far it has only generated asset price inflation — the sort of inflation that investors like. Meanwhile consumer prices are still falling — by 1.4 percent in June versus the same period last year. Factory gate prices were down 7.2 percent.