Instead of treating only the symptoms (deflationary cycle) , policymakers should have addressed the root cause: the low discretionary income of a large section of the population. Compared with countries of similar economic standing, such as Malaysia and Brazil, discretionary income remains limited. Inflation could become highly destabilizing if capital outflows occur, quickly eroding purchasing power. However, apart from crude oil and agricultural commodities, China is the world’s largest producer of many low-end and value-added products, so it most likely wont be destabilizing. Distributing money directly to households and raising minimum wages would strengthen purchasing power without triggering major economic disruptions.
