China, Japan and Baltic Tigers...

The Economist has a brilliant article on the China's economy. The article describes and analyses all possible threats to the Chinese economy at the moment, except one: a currency crisis.

As I wrote earlier (backed by research by more authoritative authors, e.g. Eichengreen or Allen), a currency or twin crisis is a viable threat in China and it is strange that the Economist does not take it into account. I bet that if hedge fund use all of their resources, the famous Chinese reserves may not be sufficient...

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My column collegue, André, is a big "fan" of inflation... In my favourite financial newspaper, I found a peculiarity that may be of interest to him.

Lowering inflation due to globalisation or other factors has usually been seen as a positive development, making the work of central bankers easier. Nevertheless, this is not the case in Japan:

A price war aimed at Japan’s 100m mobile phone users could have a significant impact on the core consumer price index, potentially prolonging the country’s brush with deflation, economists warned on Wednesday.'

This may not be a development stemming from international environment, but FT also writes that earlier there were fears that the Japanese fragile inflation may be lowered by a drastic plunge in prices of flat-screen TVs, which I do think may be due to China. I am just wondering whether Japanese alterglobalists will adopt it as an argument against globalisation... I am also wondering how alterglobalists, in general, respond to the argument that globalisation moderates inflation. Low inflation is, as we know from textbooks, less changeable, which means stability for employers and consumers and, thus, higher economic growth and lower unemployment. I guess that they could argue that low inflation is based on low wages in Third World countries. This is to some extent true, but you need to remember that costs of living in Third World countries are smaller than in the West, of which alterglobalists usually tend to forget...

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As a prelude to my article on the Baltic Tigers, please take a look at an interesting piece from FT. It seems that making appropriate (?) reforms is not always enough to create conditions for the long-term macroeconomic stability. In a week, we will delve more deeply into the topic and try to see whether the Baltic Tigers will be able to join the Euroarea soon...