An important global macro theme is the debt fueled asset/boom bust in China, that first occurred in the (SOE) industrial sector and then, following rate cuts, the real estate industry. The parallels with 1980s/90s Japan are many, even if the bank restructuring in China was a meaningful difference to the Japanese extend and pretend policy (although there still remains an issue with Chinese asset managers).
One of the consequences of the existing industrial overcapacity and real estate bubble bursting is that China, just like Japan in the mid 90s, is now experiencing disinflation, both of Asset Price Inflation (API) and Consumer Price Inflation (CPI). This report highlights the low inflation/deflation in the CPI data, showing the breakdown of various sub-indices and their trends. Worse still is the GDP deflator data.
The impact for global macro is that China will continue exporting excess goods to the rest of the world, which will keep a disinflationary trend in globally traded goods, which is already very low in many countries (e.g. USA -1.7%yoy and EUR 1.3%). How this unravels depends on Chinese fiscal and monetary policy, as well as how/if the real estate debt restructuring takes place.
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