Why China had a Soft Landing China's ability to slow down her overheated economy, reduce inflation and simultaneously maintain 10 per cent plus growth has staggered most economic observers. Unable to account for this exceptional performance they claim that China's economic management has reached a new level of control and this is reflected in its sophisticated macroeconomic management.
Inflation misdirects production.
Money, usually in the form of bank credit, enters the economy at specific points and then ripples' out. The effect is for production to be directed to the new areas of spending which now expand output. However, the survival of the new expansion becomes dependent on continually increasing expenditure. If the increasing expenditure is maintained the result is rising prices. The time during which resources remain idle is what the Austrians call the adjustment period.