Local Problems, Global Impacts

The wind is blowing quite heavily in Asia, but not only the wind. Landslides, earthquakes and other
natural disasters have put a lot of pressure on the Asian economy and its people. It will take
years to solve the troubles, and not only in Japan after the disastrous earthquake and the
following problems with the nuclear plants, but also in other countries in the Asia Pacific Rim.

Another big problem is the current inflation. This will seem to trouble the global financial
markets not too far off from now. Yet, officials in China have said that consumer inflation is
growing too quickly. Even China’s Vice Premier Wang Qishun reportedly has said that inflation is
“China’s biggest problem.” In spite of any political disagreements, one should not forget that the
global economy depends heavily on Mainland China, and a slowdown in the Chinese economy will have a
global impact.

So, the interdependence between the powerhouse China and the Western world is somewhat
tighter than many global leaders would like to admit. Problems in Asia, and particularly in China,
means problems for the rest of the world. Alongside the still troublesome financial markets, with
weak currencies such as the euro and the U.S. dollar, China’s key interest rate has jumped four
times since October 2010.

The latest consumer price index (CPI) statistics confirm this concern: In April, China’s CPI
rose by 5.3 percent — higher than the government’s 4-percent target rate. Readers may recall that
in 2008, China’s rapid growth in addition to rising global commodity and food prices caused the
country’s consumer inflation to rise by 5.5 percent.

But as with everything, there are two sides to the coin: With the growing consumption of
biofuel, prices for basic food such as corn and wheat are soaring, both worldwide and in China, and
this causes another distortion. After a disastrous 2008, when Chinese food prices saw a
22.5-percent inflation rate before hitting bottom in 2009, April 2011 figures showed food price
inflation at 11.5 percent, following the double-digit increases of the five previous months.
However, contrary to Greece, for example, Asia in general and China in particular are too strong
economically to get into real trouble.

July/August/September 2011