Inflation or Deflation?

[silbermond]

Which one is better for chinese yuan? Should chinese government support inflation or deflation and for what reasons?

[lost]

inflation, as deflation will affect it's export price .

[demyan]

Which one is better for chinese yuan? Should chinese government support inflation or deflation and for what reasons?

Well, China is an extremely export oriented country, so, if yuan's value falls (in terms of other currency), it will cause an increase in prices of chinese goods for other countries that import those goods...and I suppose that it's quite favorable for China taking into account the extents of their trade.

On the other side there is a trade-off between the price and the sizes of the trade: it could be cheaper but the countries might buy more of those goods, aight.. Here, I would say, it depends on the aggregate price elasticity of demand of all importers of China..

And last, China's currency is "pegged". At least was some time ago. It fluctuates (-ed) together with US dollar, because US is the biggest importer of Chinese products. The logic is that if US experience some sort of fluctuations, it can affect the overall levels of China trade and China is kind of trying to protect itself from these unexpected changes. Therefore, in this case, I suppose the situation in China is partly explained by US economy.

So, according to one of the options proposed, my answer is purely economists way of "I don't know", that is, "It depends..":P .

[Doni_usa]

inflation is ALWAYS better than deflation. Deflation means instability in financial institutions because of falling prices. Borrowers cant generate expected profit to pay back their loans. China already has world’s low prices. If the government supports deflation, prices will fall further down and bankrupt many manufacturers.

Although I do not know how china can support ether Inflation or Deflation since it has no control of monetary policy due to its fixed exchange rate.