According to China National News, Chinese consumer prices have fallen to a 30 month low. This may indicate that Chinese corporations are planning to increase sagging consumer spending by slashing prices, according to China Daily USA.

"With spending showing signs of drying up, there has been evidence of a price war in China with Gome, a leading domestic electronic retailer, offering 50 percent online discounts and even McDonald's slashing the price of its value dinner to 15 yuan ($2.35 US)."

Minimum Wages Increased 13%

Much has been said about the Chinese rich purchasing luxury goods, but falling prices and rising wages should empower the new middle class and the rural poor to purchase more.

Yesterday, Sina News reported, "China's State Council issued the National Human Rights Action Plan (2012-2015), proposing to establish a reasonable system for wage hikes and push the annual increase rate of minimum wage to over 13 percent." The increases will take place in 18 provinces, autonomous regions, and municipalities.

This will more than likely boost domestic spending further. The decrease in the rate of inflation, coupled with the increased buying power of the Chinese middle class, now frees China's central bank to do more to stimulate the economy that has seen a loss due to diminishing international demand for Chinese exports.

Inflation Decreases as Consumer Prices Fall

As reported in the above article from China National News, "The National Bureau of Statistics said Thursday that the annual inflation rate fell to 1.8 per cent in July, down from 2.2 per cent in June."

This indicates that China's move to increase domestic consumption in light of decreasing global demand is working. I witnessed this beginning in 2004 while living in China. I knew families that purchased their first refrigerator.

As time passed during my 4 years abroad just prior to the financial meltdown, I witnessed an explosion in construction that saw many Chinese purchasing new homes. At the same time, auto sales increased to the point that some major cities cut back on registering vehicles to discourage vehicle sales due to traffic congestion. Apparently, this trend is continuing according to statistics coming out of China.

In short, The Chinese are buying stuff "Made in China."



China's Stimulus

As America and the world experienced the financial meltdown at the end of the George W. Bush presidency, governments searched for a means to increase consumption. In America, the Obama administration deployed the "Cash for Clunkers" program, which had an immediate although temporary positive effect on the U.S. economy by slowing declining sales of American cars. During the same period, China quickly offered an incentive plan for its poor, unemployed, and retired citizens to buy large flat screen TVs, immediately increasing domestic spending.

As America began the long debate over Obama's stimulus plan, China immediately launched an infrastructure improvement program that saw the building of additional new highways, railways, and airports. This stimulus is ongoing, whereas America's ended as funding ran out with no hope of additional spending from a conservative House of Representatives hell-bent on defeating Obama this November.

Conclusion

China's rising consumer confidence, combined with decreased inflation and an increase in the minimum wage, will offset the loss of revenue from depressed sales abroad by increasing domestic spending on local products. In turn, this will free up China's central bank to continue funding infrastructure programs, which will increase jobs, and those jobs will pay higher wages due to an oncoming labor shortage and the increase in the minimum wage. China's unemployment rate is currently 4.1 %

The timeline for China moving ahead of America as the most powerful economy in the world has shortened. Once predicted in decades, some economists predict China will surpass America by 2016. Current positive trends in the domestic economy may even shorten the timeline further. In fact, some claim China passed America in Purchasing Power Parity (PPP) in 2010. Others predict a bust for China's still booming housing market will set the economy back.

Time will tell, but it is debatable that the central government of China makes better use of time than the current log jammed American system. Obama's hands are tied; the House of Representatives will work but 109 days in 2012 and then only passes mostly symbolic bills that have zero chance of becoming laws. Additionally, the minority leader in the Senate has prioritized Obama's defeat over the well-being of American citizens. Meanwhile, the Chinese deftly tweak their programs to the benefit of their middle class and the growth of their country.