China’s Economy’s ‘Sugar High’ Could Contribute to US Inflation Increase

China’s Economy’s ‘Sugar High’ Could Contribute to US Inflation Increase

Chinese policymakers are focusing on stimulating the manufacturing sector to boost the country’s slowing economy, which could have implications for U.S. inflation. A recent report highlighted that a successful manufacturing boom in China could result in increased U.S. inflation.

The credit landscape in China has been shifting, with more focus on manufacturing and clean energy sectors rather than real estate. This redistribution of credit has led to significant growth in manufacturing lending, particularly in new green loans, as the clean energy sector gains momentum.

The report estimates that manufacturing lending could account for a third of total lending in China by 2023. If successful, this trend could lead to a scenario where credit growth in China rises from 9.5% to 12% over the next two years, impacting prices in the U.S. This potential increase in inflation is attributed to China’s significant role in global manufacturing.

Contrary to conventional wisdom, a manufacturing-led expansion in China could result in higher U.S. inflation. As Chinese production increases to meet growing demand, costs for producers rise, eventually affecting consumers. This impact on global commodity markets and the manufacturing supply chain is often overlooked in predicting the inflationary effects of a manufacturing boom in China.

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