China can beat deflation if it really wants to

Comments on Yu Yongding "Can China beat deflation?" 23/07/2015

As this post suggested China may face an extended period of deflation with a negative impact on economic growth, amid its structural reforms.

It seems sensible to have expansionary of both monetary and fiscal policies to head off potentially very serious deflation and excessively slowing in the economic growth, as the author has called for, that "China must do whatever it takes to avoid falling into the debt-deflation trap".

Structural reforms should, in the short term, be done in the context of stimulating economic growth and combating deflation. There should be enough room in China for it to invest, given that China's capital stocks are still low in not only infrastructure in many locations with the need of continued urbanisation, but also in the short components of its structural imbalance. Understandably, China is still far from a high income country and it will take many years and decades to catch up with the levels of high income industrialised countries. Capital labour ratio in China is arguably still equally low as its per capita income. That indicates the needs for increasing its capital stocks not only in aggregate sense, nut particularly in the under balanced areas of its economy.

It is, however, important to channel the monetary and fiscal expansions into the right areas of the real economy and prevent any excessive flow to its stock market for speculative activities.

Although the housing market in China has seen very high property prices and the authorities have tried to dampen its further growth, the housing construction sector still have room to expand.

Furthermore, its services sector has plenty of room to expand and its growth can be combined with the Chinese leadership's push for innovation and promoting enterprenourship.

In summary, China needs expantionary fiscal and monetary policies to stimulate the growth of the economy and address deflationary pressures. Structural reforms and adjustments, in the short to medium terms, need to be done in that overarching context. In both the short and long terms, China should not loose sight that its income is low, so is its capital labour ratio. The main focus of structural adjustments, particularly in the short term, should be on expanding infrastructure (including housing in cities and towns where further urbanisation will see a rapid increase in resident population and the capacities of the services sector.

A new policy proposal to combat domestic deflation

Comments on Volz Ulrich “What Japan needs to do to end deflation”, 30/06/2010, http://www.eastasiaforum.org/2010/06/30/what-japan-needs-to-do-to-end-deflation/
We can all be more creative and try something new, as opposed to try the failed old tricks.

Speaking of non-conventional measures, why aren't economists more creative and bold in both domestic macroeconomic policy and international policy using a new kind of international monetary instrument to resolve domestic deflation problem existing in countries like Japan?

Just consider what the US has been doing, it is not too difficult for one to consider a policy from a deflationary country like Japan to lend to other countries specifically for them to buy Japanese goods and services with more favourable interest rates, as long as those lendings can be secured with very low risks.

Risks can be managed and minimised by sovereign guarantee or other secured guarantee.

If Japan is in a deflationary cycle, then it can stimulate other countries to provide sufficient demand for it and in turn stimulate its own production and demand in the process.

That is probably better than using and changing exchange rate.