Two Big Problems with the Same Solution

When I logged into my Netvibes account this morning I saw the headline, Beijing’s fastest-growing export is inflation   It describes how China used to export deflation through low-cost goods, which helped prevent inflation from gather ground in the West. Now due to China’s growing demand for resources, China is exporting inflation to the West in the form of higher resource costs (it’s also driving up its domestic inflation).

Then later in the day I read this story from China Economic Review: 

China launches first environmental investment firm

Environment
10 September 2007

China launched its first environmental investment management corporation, Zhongzhuo Energy Investment, last week in Beijing, Economic Observer reported (in Chinese). The new state-owned firm will be devoted to providing investment management services for the coutry’s energy-saving, environmental protection and sustainable development projects. The founding of the new organization is seen as a formal effort on the part of the government to actively promote a “recycling economy.”

After reading that story something clicked (hopefully it did for you too). China is racing to buy lots of resources because its industries are very inefficient and produce a lot of waste. This waste isn’t just causing the country to export inflation, it’s destroying the environment. If Zhongzhuo Energy Investment is really what the Central government say it is — something that will help business to become more energy efficient  — then some* of that inflation should go away and the country’s environment will hopefully improve.  If not then we’re all in trouble either economically or environmentally.

J.

* Unfortunately, these energy-saving measures will mark the end of cheap Chinese products — if the VAT refund policy on July 1/07 didn’t kill it already.

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