The Reflationary Road Ends in Beijing

This is the end game for the global economy. China refires the inflationary forge or global deflation makes a return.

China gets serious about reflation
Initially, the authorities welcomed the slowdown in credit growth, but lately they have realised that the downward momentum is getting out of control. Investment is weakening in the real estate and manufacturing sectors. Retail sales volume grew at a steady 10.0 per cent in April, but this relatively bright spot was not enough to offset the strong recessionary forces in the industrial sector.

Faced with this deteriorating picture, the authorities have been reluctant to abandon their strategy of rebalancing the economy away from investment and exports towards consumption, while slowly deflating the credit bubble. The determination to avoid the mistakes of their predecessors has been uppermost in the minds of the present regime. But this was always likely to be a difficult tight-rope to walk, and there are now clear signs that their emphasis has changed.

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