Drop in inflation in China is bad news

How often is a drop in inflation a bad thing? Never? Not exactly.

The consumer price index in China increase by only 2.4% in November. Earlier in the year, that number was closer to 9%. According to the FT, "In further signs that price pressures are fading fast, annual non-food inflation – considered a less volatile gauge of underlying conditions – fell to 0.6 percent in the year to November from 1.6 percent in the 12 months to October."

The news may be good for farmers in rural China, but for the rest of the world, it is very unsettling. Sharply rising inflation in the world's most populated country was a strong indication that its economy was overheating due to rapidly growing GDP, based mostly on exports. It also meant an increase in imports of goods being bought by the new Chinese middle class. A slowdown in inflation is yet another sign the nation's economic growth is grinding to a halt. It is, in essence, a sign that the global GDP may actually be shrinking and that the conditions that made China an important player in international trade and politics could begin to fade.

The Chinese are used to an endless improvement in personal opportunity. Rapid GDP growth will do that. What happens when tens of millions of people see their bubbles burst? It probably means that the central government will not be viewed as well as it has been in the past.

The citizens in China are about to get a rude shock. The political forces that rule the nation cannot overcome powerful outside economic forces. Social instability may be about to take hold. And no one knows what that means for the future of the political system in a place with over 1.3 billion people.

Douglas A. McIntyre is an editor at 247wallst.com.