Vitaliy N. Katsenelson, CFA submits: Party rulers in China are trapped in a position that chess players deeply fear ? zugzwang ? where any move made puts you at a disadvantage. In China, the potential cost of both action and inaction is economic collapse.
China is slowly starting to face the consequences of its actions; loans grew over 30% a year over the last few years, and inflation is rising fast. Inflation in developed countries is unpleasant, but it is tolerable. For a developing country ? and China, despite its size, is still a developing country ? it can be catastrophic. In developed countries, we spend two or three times less on food as a percentage of our income as do people in developing countries. Therefore, though food inflation is unpleasant, we have a much greater tolerance (margin of safety) for it. While food inflation in the US can mean fewer trips to restaurants or
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