Economy
An Assessment on China’s Inflation Trend and Outlook

In the quarterly meeting of its monetary policy committee, the People’s Bank of China (PBoC) repeatedly mentioned price stabilization in its policy statement. The trend of inflation in China is not only becoming a restrictive factor for monetary policy to support stable growth, but has also increasing impacted its economic recovery. This has also aroused worry in the market that with changes in the international situation, inflation will exceed the central bank’s 3% policy target, which could trigger passive adjustments in the policy or even hyperinflation in extreme cases.
Despite the spike in global inflation levels, inflation in China has remained relatively stable in recent years without significant fluctuations. Yet, as the international situation changes, what will happen to inflation in China? Will there be a situation of high inflation as in developed countries? As this is not only related to the process of economic recovery in the second half of the year, but also to the direction of future macro policy adjustments, it has been an issue of concern for the country’s policymakers.
When it comes to the issue of global inflation, researchers at ANBOUND have noted that high inflation in developed countries such as the United States and Europe may cause short-term outbreaks of aggregate demand under the post-pandemic monetary stimulus. In addition, there is also an imbalance in energy sources brought about by rising geopolitical risks. Factors like the restructuring of supply and demand during the pandemic and carbon reduction development policies have also brought long-term effects. Such circumstances would mean that economies with high dependence on energy and with heavy service industries have to face the threat of high inflation. Inflation in the United States was 8.6% in May, while the United Kingdom saw a record high of 9%, and the latest data showed that the inflation level in the eurozone reached 8.6% in June. There is the risk that the inflation problem is getting out of control, which forces major central banks in Europe and the United States to adopt tightening policies like raising interest rates and shrinking balance sheets to deal with the risks brought by inflation at the expense of economic slowdown or recession.
Price Changes in China and in the United States

Source: Eastmoney.com, chart plotted by ANBOUND
Although China’s inflation did increase in the second quarter, the moderate rise in inflation did not form a fundamental constraint on the country’s economic development and monetary policy. This is mainly because its economic cycle is different from that of Europe and the United States. While China is also affected by external factors, the lack of domestic demand in the economy is still the main reason for changes in inflation. At the same time, the COVID-19 outbreaks in developed areas of the country in the first quarter of this year have had a great impact on China’s production and life, while the recovery of consumer and service demands has not seen a retaliatory rebound. Therefore, the recovery of demand as a whole requires a certain process. In the case of insufficient effective demand, it would be difficult for domestic inflation to change rapidly.
When it comes to the aspect of supply, it should be pointed out that China’s policies have placed a lot of emphasis on energy security and bulk commodities. This has essentially guaranteed the supply of resources, thus avoiding the occurrence of hyperinflation caused by externally imported inflation. As far as the domestic industry is concerned, China itself has a relatively complete industrial chain and supply system, which has also minimized the disturbance to production and supply caused by uncertain factors brought about by the adjustment of the global supply and industrial chains. On the one hand, through the monopoly of state-owned enterprises in industrial upstream, China has basically maintained the crude oil import channel even under the circumstance of crude oil price fluctuations. On the other hand, the coal-electricity linkage is used to maintain the stability of the electricity price of enterprises as much as possible. Although a large number of power generation enterprises have suffered losses, and there has also been the issue of “power cuts” in some places, the overall electricity price is still in a stable state. This greatly alleviates the impact of energy price fluctuations on business production.
Due to fluctuations in international energy and commodity prices, the increase in production prices as a “global factor” has continued for quite some time for China. The country’s PPI level will remain high for a long time from 2021. However, the widening of the scissors gap between PPI and CPI has not resulted in a short-term sharp increase in final consumer prices. Thanks to the continuous improvement of the production efficiency of enterprises, some of the pressure of rising costs has been absorbed. Meanwhile, in most traditional fields, under the situation of overcapacity, flexible production buffers the pressure of rising upstream prices, accelerates industrial integration, and passively achieves “de-capacity”.
In the iron and steel industry, where the problem of overcapacity is more prominent, since the outbreak of the pandemic, the price of crude steel products has not fluctuated much. At the same time, some leading enterprises are also accelerating the integration, which has alleviated the impact of fluctuations in energy prices and iron ore prices on the industry. This, in turn, has also eased the cost pressure on downstream enterprises. All these factors signify that the commodity price is continuously digested through the industrial chain, and finally, the terminal price is protected from the upstream influence.
In addition, the PBoC has always emphasized a “prudent” monetary policy, adhered to the policy of matching the growth rate of money and social financing scale with nominal GDP, and not over-issuing money. This in effect keeps the domestic money supply stable, which is the main factor for the basic stability of the RMB exchange rate and the stable domestic short-term price level. There is a clear difference between the environment within China and the international environment, which contributes to the overall stability after the COVID-19 outbreaks ended.
As the PBoC put forward the overall consideration of “stabilizing prices” and “stabilizing employment”, its focus should be on avoiding hyperinflation caused by food, energy, and supply chain constraints. This is especially true when it comes to “imported inflation” brought about by the uncertainties such as increased geopolitical risks and international capital flows. It is worth noting that the price of pork, which is the main component of the CPI, has undergone some changes in the context of the shifts in the pig cycle and the increase in food import prices, which may impact food prices and inflation trends. However, this change is more of a cyclical factor. According to the current situation of production and demand in China, when the industrial chain is complete and the logistics system is stable, it is unlikely that there will be an overall imbalance of supply and demand. This means that domestic inflation may rise moderately as the economy recovers, but there will be no hyperinflation.
Under the current situation, researchers at ANBOUND believe that among the triple pressures of demand contraction, supply shock, and weakening expectations, the main contradiction facing the Chinese economy is still demand contraction. Macro policy adjustments, including monetary policy, still need to focus on “stabilizing growth”. Only by stabilizing aggregate demand can employment issues and structural problems be solved. As far as monetary policy is concerned, it is still necessary for China to maintain a “moderately loose” tone to provide an appropriate monetary environment for economic recovery and stability. Of course, the issue of inflation cannot be completely ignored, but the coordination of other industrial policies and market supervision policies is needed to stabilize the supply chain, sustain a complete domestic production system, and maintain a balance between supply and demand, so as to effectively promote market recovery and sustainable growth.
Final analysis conclusion:
Inflation is not only a problem that major economies have to face, but also a potential risk factor in China’s economic recovery. For now, insufficient domestic effective demand is still the main factor restraining inflation. In the short term, China’s complete industrial chain, stable supply system, as well as its restrained monetary policy will play an important role in alleviating inflation. However, in the medium and long term, with the intensification of the international energy crisis and the surge in global inflationary pressure, the country still needs to be alert to the risk of high inflation.
Economy
Towards Re-Globalization: Defining a New Social Contract for the Global Economy

“As the tides of re-globalization reshape our world, a new social contract emerges, illuminating the path towards a reimagined global economy. Through the embrace of collective cooperation and equitable practices, we can forge a future that transcends borders, empowering individuals and fostering a harmonious global community.”
Underlying every economic system is a social contract, which establishes the norms, values, and beliefs of the people involved. This contract dictates how individuals should behave within the economy, defines their reciprocal obligations, and shapes the way the economy operates. In numerous market economies worldwide, including both advanced and emerging nations, there is a prevailing materialistic social contract that is increasingly failing to address the basic needs of its citizens. Globalization, in its essence, is not inherently positive or negative. It possesses the potential to bring about immense benefits. However, to ensure that the globalization process remains balanced and prevents excessive control of financial institutions over the global economy, we need a world governing body that is accountable to the people of all nations.
To those who support globalization, often linked to the embracing of capitalism in an American fashion, it is seen as a path to progress. They argue that developing countries must embrace globalization in order to experience growth and effectively combat poverty. However, many individuals in the developing world have not witnessed the economic benefits that were promised with globalization. In Africa, the lofty hopes that emerged after gaining independence from colonial rule have, for the most part, gone unrealized. Instead, the continent finds itself descending further into distress, with declining incomes and deteriorating living conditions. Even the hard-fought advancements made in life expectancy over the past few decades have started to erode.
The critics of globalization claim that Western countries are guilty of hypocrisy, and their argument has merit. These countries have pressured impoverished nations to dismantle trade barriers, while simultaneously upholding their own barriers. Consequently, developing countries are unable to export their agricultural goods, leading to a detrimental loss of vital export income. The Western countries, even when not engaging in hypocrisy, have played a significant role in driving the globalization agenda. As a result, they have obtained a disproportionate share of the benefits, often at the expense of developing nations. This was not solely due to the refusal of more advanced industrial countries to open their markets to goods from developing countries, while insisting on open markets for their own goods. These advanced countries also persisted in subsidizing agriculture, creating obstacles for developing nations to compete, while simultaneously demanding that these nations eliminate subsidies on industrial goods.
When it comes to economic globalization, one controversial and almost draconian policy of the international financial system led by the International Monetary Fund (IMF) is the requirement for developing economies to open up their markets to foreign competition, sometimes prematurely. These countries often feel compelled to comply with IMF demands because the provision of IMF funds is contingent upon swift trade and capital market liberalization. In contrast, developed societies, such as the United States, have historically protected industries considered unable to compete with foreign markets, until those industries became strong enough to thrive in a free market economy.
Perhaps most striking is the perceived hypocrisy of Western countries, who advocate for trade liberalization in the products they export, while simultaneously safeguarding sectors where competition from developing countries could potentially threaten their own economies.
For many years, the voices of the impoverished in Africa and other developing nations have often gone unnoticed in the Western world. Those who toiled in these countries were aware that something was amiss as financial crises became more frequent and the numbers of poor individuals grew. However, they had limited means to alter the rules or exert influence over the international financial institutions that dictated them. Those who held democracy in high regard observed how “conditionality,” the conditions imposed by international lenders in exchange for their aid, eroded national sovereignty.
The issue of governance lies at the core of the problems associated with the IMF and other international economic institutions. The decision-making power is primarily held by the wealthiest industrial countries, as well as by commercial and financial interests within these countries. As a result, the policies of these institutions tend to align with these dominant influences. It is often remarked that these institutions lack representation from the nations they serve, and the management positions are typically selected by major developed nations that are mostly driven by their own specific interests. Traditionally, the head of the IMF has always been a European, while the head of the World Bank is always an American. The selection process for these positions occurs behind closed doors, without any requirement for the head to have any prior experience in the developing world.
Economic theory does not guarantee that every individual will benefit from globalization, but rather suggests that there will be overall positive gains, allowing winners to potentially compensate the losers and still come out ahead. However, conservatives have argued that in order to maintain competitiveness in a globalized world, tax reductions and reductions in welfare state provisions are necessary. In the United States, for example, taxes have become less progressive, with tax cuts mainly benefiting those who benefit from globalization and technological advancements. This has resulted in a situation where countries like the US, and others following their lead, have become wealthy nations but with poor people.
The appeal of capitalist economies is often based on the principle of a material social contract, where people support this economic system because it promises higher living standards and greater economic freedom compared to alternative systems. The underlying assumption is that material prosperity can fulfill human needs. However, in many countries, this economic model has resulted in increasing inequality across various dimensions such as income, wealth, education, health, skills, and social esteem. It has also led to reduced social mobility, growing social divisions, and a widespread sense of disempowerment in response to the uncertainties associated with globalization.
In advanced economies, disparities have increased among different generations, with younger individuals falling behind their older counterparts, as well as between metropolitan and rural areas. These inequalities have eroded social cohesion, leading to reduced trust in government, lower civic engagement, decreased political participation, and a rise in support for populist ideologies. Policies such as corporate tax reductions and decreased welfare provisions have benefited a small portion of the population, who have then utilized their newfound economic power to shape the political process and media discourse to their advantage.
The interactions between successful business leaders, politicians, and journalists have contributed to a cycle of inequality, deregulation, and the gradual dismantling of social safety nets. This has been perpetuated through notions of “trickle-down prosperity” and the perception that there is a trade-off between equity and efficiency, suggesting that greater material prosperity can only be achieved at the cost of less material equality. As a result, an increasing portion of GDP growth has been channeled towards the top 1% of the income distribution.
The issue at hand is that economic globalization has progressed at a faster rate than the globalization of politics and mindsets. While our interdependence has grown, necessitating collective action, we lack the proper institutional frameworks to address these challenges in an efficient and democratic manner.
The main obstacle to successful globalization reforms lies not only within the institutional structures but also in the mindsets of key decision-makers. It is crucial to prioritize concerns such as environmental sustainability, ensuring the participation of marginalized communities in decision-making processes, and promoting democratic principles and fair trade. However, the challenge arises from the fact that these institutions often reflect the priorities and mindsets of those in positions of power. Typically, central bank governors are more focused on inflation statistics rather than poverty statistics, while trade ministers prioritize export numbers over pollution indices. This misalignment of priorities hinders efforts to fully realize the potential benefits of globalization.
Establishing a new social contract that is grounded in sustainable principles can help reconnect economic activity with the fulfillment of essential human needs. This redefined contract requires a fresh understanding of the responsibilities of businesses, households, and governments. It is evident that globalization can undergo change, but the crucial question is whether this change will be driven by a crisis or the result of deliberate, democratic deliberations. If change is crisis-driven, there is a risk of generating a negative backlash against globalization or haphazardly reshaping it, which could lead to potential problems in the future. On the other hand, taking control of the process offers a potential avenue to reshape globalization, enabling it to truly live up to its potential and promise of improving living standards for all individuals in the world.
Economy
Why BRICS matters for Pakistan

BRICS represents Brazil, Russia, India, China and South Africa, encompassing 41% of the global population and 24% of the global GDP. The 15th BRICS Summit being held from August 22 to 24 in Johannesburg, South Africa. About 40 countries participated in this year’s BRICS summit where some key decisions were made adding six new members namely Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. The new membership will be effective from January 1, 2024.
In a historic first, Pakistan’s participation in the BRICS’s seminar, ahead of the summit, was encouraged by Beijing, which wants to integrate Pakistan into the alliance. However, Pakistan surprised the international community for not being the part of BRICS’s summit in Johannesburg. By joining BRICS, Pakistan could potentially benefit in multiple ways.
First, BRICS is the emerging power Centre of the world. Joining BRICS could open up economic opportunities for Pakistan. The country could engage in trade with other member states, benefiting from their growing economies. Pakistan’s exports could find new markets within the framework of BRICS. Muhammad Karim Ahmed analysed, “These BRICS countries are emerging economies and they have improved their country, their economic conditions, manufacturing, and found markets for themselves through joining the bloc”. Certainly, the economic prosperity will minimize unemployment, poverty and illiteracy in Pakistan.
Moreover, developing nations are dissatisfied with the stringent conditions imposed by western-dominated financial institutions like International Monetary Fund (IMF). BRICS has also created two new financial institutions, the New Development Bank (NDB), also known as the BRICS Bank and the Contingent Reserve Arrangement (CRA). CRA, which has a capital of more than USD 100 billion, can help member states withstand any short-term balance of payment crises. Pakistan if allowed in BRICS, can easily access the USD 100 billion CRA as well as the comparatively lenient loan conditions of NDB, without improving the functioning of the Pakistani state.
Second, BRICS membership could boost Pakistan’s geopolitical leverage by providing a platform to collaborate with other emerging powers on global issues. Pakistan has always been blackmailed by its traditional allies. Becoming a BRICS member could offer Pakistan an opportunity to diversify its diplomatic relationships. As a BRICS member, Pakistan could potentially demand for reforms in global governance structure. This could lead to a more equitable international order.
Third, some political analysts suspected that Pakistan’s inclusion in BRICS may generate disturbances with India, leading to a defunct group. However, it appears that India’s opposition to Pakistan joining the bloc is dying down. Recently, Indian Prime Minister Modi has supported BRICS expansion. South African president also welcomed Modi’s remarks, who remarked, “delighted to hear India supporting expansion of the BRICS”. Senator Mushahid Hussain Syed told Arab News that “First of all, Pakistan should apply for membership in BRICS, where the lead role is with China and where India is the weakest link due to its proclivity to be part of the West’s new Cold War against Beijing.” So, BRICS membership will certainly increase Pakistan’s diplomatic leverage with regard to India in the region.
Fourth, BRICS membership could also alleviate Pakistan stature in other regions of the world. For example, in East Asia there’s Regional Comprehensive Economic Partnership (RCEP), again China is in the lead there, but Pakistan isn’t ‘Looking East’! Why? Somewhat inexplicable, not seizing opportunities when these arise.
Fifth, BRICS membership will also introduce correctness in Pakistan’s foreign policy objectives. International community brands Pakistan as a terror sponsor state. Through joining BRICS, Pakistan could divert its security-oriented approach in foreign policy in line with BRICS manifesto. Even India used BRICS forum in Xiamen to condemn Pakistan-based militant groups like Lashkari Tayyaba. So, Pakistan could also use BRICS forum to project its soft image in the world.
In the past, Pakistan has suffered immensely by aligning itself with one group against other. There appear clear indications that Russia and China have shown clear intent to use BRICS to counter G-7, the grouping of powerful wealthy western nations. By orienting its foreign policy away from block politics, Pakistan could potentially get more economic benefits.
Economy
The Concept of Sustainability for the World’s Cotton Industry Amidst Geopolitical Challenges

The textile industry is one of the industries that contributes to the largest air pollution in the world. Responsible for 10% of global carbon emissions and 20% of global water waste, the fast-fashion phenomenon also contributes to this problem. If this is allowed to continue, the effects of global warming will get worse. The concept of sustainability itself can also be a polemic for the textile industry because they are experiencing global fluctuations caused by high inflation, weakening demands, and large inventory amounts.However, high global warming will also backfire on them and weaken this industry. Cotton, which is the raw material for making textile fabrics, deeply requires water and fertile soil. With the upcoming heatwaves that will occur, many dry lands will cause difficulties in world cotton production. The United States, as one of the largest cotton producers in the world, is starting to worry about this issue. Moreover, the energy crisis adds further complexity to this problem.
The textile industry itself is trying to revive itself due to many geopolitical problems such as the trade war between China and the United States, the post-Covid-19 situation, and the war between Russia and Ukraine. Even though the Government has been aggressive in advancing green transformation, many customers’ behavior places their spending on assets, automotive, housing, and so on. The problem of inventory buildup is due to textile production continuing to run and increasing but customer enthusiasm is always decreasing, coupled with the thrifting phenomenon which is currently rising.
To focus on green sustainability is a long homework for the textile industry. Although the textile business remains slightly positive in general in the first half of 2023, there are still fears of a global recession as the Federal Bank continues to raise interest rates. However, concerns about the issue of inventory buildup have begun to be resolved. In Cotton Day 2023 held by the United States non-profit organization Cotton Council International in Jakarta, Indonesia, one of the speakers, namely Bruce Atherley (Executive Director of CCI), stated that textile business actors have begun to be careful and control the turnover of textile commodity inventories, and this has resulted in decline in world cotton demand. However, he also stated that this effort could be a good thing and there is optimism about the stability of the textile industry ecosystem. With inventory being depleted across the supply chain, it can be expected that the cotton and textile industry will return to normal and positive demand.
Referring to sustainability and green transformation programs, many textile industry business players have made a commitment to only use sustainably grown cotton by 2025. They have also made a commitment to carbon reduction. This is contained in the regulations of the European Union and the United States, Investment Groups, as well as Focus Media and Non-Governmental Organizations. CCI also stated that the trust protocol will drive continuous improvement in key sustainability metrics by leveraging quantifiable data and variable data while delivering unparalleled visibility into supply chains for brands and retail members.
The concept of circularity must also be considered in green transformation efforts in the world textile industry. Circularity is the concept of minimizing waste and reusing resources. The circular model aims to create production and consumption that can be recycled (closed loop). Circularity is the solution for sustainability. Circular strategies include eco-friendly recycling, easy-to-reset designs, products as a service (PaaS), and increased producer responsibility. The benefits we will get from this concept are reducing the amount of waste, maximizing resource conversion, increasing investment, reducing carbon emissions, increasing economic opportunities, and improving brand reputation. However, this concept can also give rise to challenges such as technological limitations in developing recycling technology, supply chain complexity in traceability and transparency, complicated regulatory framework which includes supporting policies and regulations, and unpredictable consumer behavior. Hopefully more textile and cotton commodity industry players will pay more attention to the importance of the concept of sustainability in their production processes so that carbon emissions and pollution can be reduced which then prevent the worsening condition of global warming.
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