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May 18, 2006

China’s tightrope

Most people think China is on top of the world with their gains in manufacturing and their large trade surplus. But N.C. State University economist Mike Walden says there are underlying issues that are cause for concern.

“I think if you understand (the issues) then maybe it will help [you] understand why China behaves the way it does. They have a big issue with what’s called rural to urban migration," explains Dr. Walden, a professor of agricultural and resource economics.

"That is, there are a lot of people in rural China who are leaving the rural areas. They are moving to the cities, and they need jobs.

"So China has a big concern about creating jobs for all those new people who are moving into the cities. And to do that they are trying to spur manufacturing sector to create those jobs.

"One of the ways they do that is to sell their products overseas. To do that, they try to keep their currency value low. And to do that they print a lot of money.

"They have been printing money right and left.

"Now so far this has been working for them, but this does run the risk of internal inflation. That is, if they print too much money too rapidly, they can cause a lot of inflation.

"And we have had experience in our country of what that can do to you. And in fact in many countries, high inflation can lead to economic collapse.

"So China does have a little tightrope to walk here, and we do need to watch them because if China falls, since they are now a big part of the world economy, it could have worldwide ramifications."

Posted by deeshore at May 18, 2006 08:00 AM