Disinflation in China is one of the eye-catching macroeconomic phenomena against the backdrop of global high inflation. Look at the other BRICS countries: India’s latest inflation stands at 7 percent, South Africa at 8 percent, Brazil at 9 percent, and Russia at 14 percent. China? Below 3 percent. The real estate and debt deleveraging must be accountable for the disinflation, as is what Japan experienced from the 1990s to last year. Even Japan is now seeing 3 percent inflation which is higher than that of China. From now on, we have to introduce a new label “Asia ex-China” to replace “Asia ex-Japan.”
Inflation is the outcome of excess money. If the created money is absorbed by real activities, financial products, or other assets, then there would not be excess to generate inflation. Yet China is undergoing economic recession and assets deleveraging, money has actually been outflowing from these markets instead of the other way round. Presumably speaking, there should be excess liquidity given the government has been boosting for years. Look at the money supply data: M0 year-over-year (YoY) growth is trending up to 14 percent, and that of M2 to 12 percent….