What to expect from China in light of current deflation? Peter Cardillo answers

economictimes.indiatimes.com:

«I think China is headed to a serious problem of deflation and we saw that with the numbers today and that means that they are going to have to do a lot to prop up economic activity,» says Peter Cardillo, Spartan Capital Securities.In light of the current deflation that is getting reported in China, how do you think the government is going to react? Are you expecting stimulus measures? Are you expecting tax cuts? What exactly do you expect the government to do? Do you think there is going to be higher spending by the government?I think China is headed to a serious problem of deflation and we saw that with the numbers today and that means that they are going to have to do a lot to prop up economic activity. Probably incentives on taxes and if need be, continue with relaxed monetary policy and government intervention.

I do not see how China can escape a recession. In fact, I think they are probably already in recession.

So which means the worst of all evils could actually grip China and that would be a deflationary spiral that was similar to what we saw in the Japanese economy. And of course, that would be negative for the global economy.So, if domestic demand in China is taking the kind of dip that it is currently seeing, tell us about its standing as the world's factory. Is that image, is that potential going to get sufficiently tarnished now? And do you think as a fallout, there could be economies like India that could gain?Yes, I think it has been tarnished and there has been a lot of talk and probably for the right reasons that most people are looking for India to emerge as the saviour of the second world's economy.