A tidal wave of inflation is hitting the face. Interestingly, this inflationary tide first hit the raw materials sector, and has already washed the manufacturing owners to death. Since the price indexes from China’s National Bureau of Statistics are simply not in tune and never have any real relevance to the real world, I have screened ten important commodities, tracked their price changes in real time and calculated their average price changes as the old barbaric version of the price index.
Ten important commodities end-of-period price tracking since 2014 (author’s tabulation)
So far this year, as of early May, cumulative price increases have reached such horrific levels as 10% (common sense: annual price increases of 5% or more are considered inflationary, and 7% or more, hyperinflationary). For China, the main price increases are still contained in the raw materials sector and have not been effectively passed on to the end consumer goods. But this suppression of end-consumer prices is never sustainable in the long run. Manufacturing owners unilaterally endure the price of raw materials, pay the price, is nothing more than a decline in profits or even losses. When they can’t stand it, they either close down their businesses, causing a reduction in supply and a subsequent increase in consumer prices; or they simply raise prices. In short, as long as this increase in raw materials continues for another quarter (manufacturing companies are basically taking orders a quarter in advance), then the end consumer prices are bound to usher in a sharp rise.
The key is that the starting point of this global inflation is the United States, the United States side of the terminal consumer prices have been out of control, April consumer prices rose 4.2% year-on-year, up 0.9%, is the largest single month of consumer price increases in the United States since the turn of the century. The cause of this round of global inflation, is the new Biden administration to pursue extreme leftist purposes, while engaging in a major domestic blockade, while crazy printing money, trillions of trillions of dollars of printed money; the other side is the implementation of extreme environmentalism, forcing production companies to pay high environmental costs, and crazy suppression of domestic oil production and transportation in the United States, the price of oil directly pulled doubled. The leftist rule, the sky is angry, the global economy to the abyss, this thing really do not know how should be evaluated.
Well, back to the topic, now that the end consumer prices in the United States have begun to skyrocket, can China actually not follow the rise? For the current degree of economic globalization, there is no such reason. Moreover, the most troublesome thing is that, for the time being, China can still control domestic food prices, however, global food prices are in fact rising sharply, China can still hold down food prices for how long, that is really a matter of optimism.
According to customs data, China’s most important food import species, soybeans, the unit price of imports in April 543 U.S. dollars / ton, compared to 435 U.S. dollars / ton in December last year, the price increase has reached 24.8%. China’s annual soybean imports are up to about 100 million tons, which is an important raw material for edible oil, and the soybean residue after oil extraction is also a very important feed and industrial raw material. The price of imported soybeans has skyrocketed and will eventually be reflected in the price of end food. On this issue, administrative directives are useless, no matter how strong they are.
U.S. soybean futures price trend since March 2020 (web image)
U.S. soybean futures price trend. There is nothing that can be done about this trend, the whole world is subject to it and no country can price independently from the U.S. market.
And that’s not all. Since the US far-left government pursues a very peculiar humanitarian philosophy of sending aid to people even for extreme terrorists. Billions of dollars in annual aid to the Palestinians were stopped under Trump, so the Palestinians were honest for four years, and the situation in the Middle East was great, with Arab countries lining up to reconcile with Israel and sign peace agreements. As a result, once Biden took office, cash funding to Palestine was immediately restored. With money in their hands, the Palestinians began to make trouble on the spot, casually finding a pretext for Israel to engage in brutal demolitions, and began to throw rockets at Israel, a throw of thousands of them. Israel, of course, was not going to give up, so it launched a precision counterattack, killing Palestinian military commanders one by one. Both sides are now at war, and the overall peace in the Middle East has dissipated. This war, if not controlled, it may be, is the starting point of World War III. But this matter is still slightly too early to say, the most troublesome is that the Middle East region into a state of unrest, the most affected, or is the price of oil.
Oil prices previously increased not to mention, and then up, in fact, who can not stand. Now oil prices have been tangled around the position of $ 65 / barrel for ten weeks, in the context of global inflation, the oil price suppression for a full ten weeks, which has been the result of the OPEC organization to fully expand production capacity. But the United States is now engaged in raising tigers as a set of addiction, living contributed to the Palestinian-Israeli conflict, the key is Biden and his leftist group behind the lack of responsibility, no crisis response capabilities, this matter is now even out of control. If the Palestinian-Israeli conflict expands, the countries of the Middle East began to choose sides and participate in the conflict, or even extreme, as long as any of the Middle East oil-producing countries involved in the conflict, the oil prices will bear the brunt of the immediate impact on the sky.
This is the global context we are facing: the U.S. Biden far-left government, is desperately trying to bring the global economy into the abyss, a moment to come out of a mishap. In this case, I hope my readers can keep enough judgment. Here, to give you the simplest criteria: as long as the Biden far-left government to do things, its decisions are bound to be stupid, the results are bound to be harmful to the global economy, there will be no exceptions! And what is China going to do about the big inflation now coming in from the US?
So far this year, China has actually shown clear signs of contraction, both fiscally and financially. Given below is the data table of the total social financing increment so far in 2016, from January to April this year, the social financing increment was $12.12 trillion, compared to $14.21 trillion in the same period in 2020, a contraction of 14.8%.
Changes in China’s incremental social financing since 2016 (author’s tabulation)
The two most significant areas of contraction are: corporate financing and government financing. Corporate financing shrank by a whopping $2.57 trillion from January-April this year at $6.69 trillion, compared to $9.26 trillion in the same period in 2020, while government financing shrank by $0.98 trillion from January-April this year ($1.76 trillion – $2.74 trillion). This actually means that China’s financial system is no longer lending money on a large scale this year to companies whose cash flow is about to break as it did last year, and on the other hand, the government is no longer willing to borrow money on a large scale for infrastructure this year. The good thing is that China’s residents still maintain a high enthusiasm for buying houses, and the more inflationary they are, the more they insist on buying houses even if they don’t eat or drink. That’s why resident financing has seen a sharp rise, with $3.09 trillion in resident financing from January to April this year, a big increase of $1.22 trillion from $1.87 trillion in the same period in 2020.
Folks, this simultaneous contraction of corporate financing and government financing is actually the most important response by the Chinese government to the onslaught of inflationary tide. However, now that global inflation is raging, China’s capital contraction is actually better than nothing, and not of much significance. Commodity pricing has long been globalized, and it’s unrealistic to expect to go it alone. Europe and the United States are now trapped in the trap of leftist governance, generally in deep water, a wave of stupid people who know nothing about governance on the stage, in addition to printing money, the best thing is to engage in co-ed campaigns.
We now look at it with such cold eyes, it feels like a mirror image of 2008, completely reversed. China now is the United States in 2008, and the United States now is China in 2008, when the United States was forced to puncture the real estate bubble and bleed the bottom wealth once more. Ladies and gentlemen, you must realize that this bloodletting is actually a process of asset price repricing, and there is no inflation during this major society-wide asset repricing process. And now the United States, a while three trillion a while two trillion to engage in a big investment plan, exactly the same as China in 08.
Now this kind of U.S. initiative to export inflation to the world, pulling the world together to pounce on the situation, want to curb the wave of inflation, the only way to repeat a major asset bubble burst, the process of asset repricing. Now the world’s two major asset bubbles, one is the U.S. stock market bubble, the other is China’s real estate bubble, piercing any one of them, can immediately curb the great spread of inflation. So next, it’s time for these two bubbles to battle it out to see who is tougher and more resistant to the onslaught of inflation. That is, in essence, it’s the Chinese speculation team, dueling with the American Wall Street.
I’m honestly looking forward to this inexplicable showdown of the century. It’s just too interesting! Before this month, no one even thought that the inflationary tide would just pounce and hit the end consumer so quickly. The only logical extension would be for the Chinese speculators and the US Wall Street to decide whether to live or die for once. And then think about the Chinese people so far this year are enthusiastic to buy houses, I was for the first time in my life by the people’s enthusiasm to buy houses to move, think they are really “the most lovely people”. I think the knowledgeable people on Wall Street will be scared to death when they see the 65.2% year-on-year increase in residential loans in China from January to April this year. The so-called chivalrous man, to buy a house for the country, the ancient people are sincere I do not deceive also!
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