A lot more evidence of an inflation problem here.

Market forces may be at work forcing ‘currency adjustment’ from that angle as China undergoes the transformation from employment growth via export led growth to employment growth via domestic demand as world demand for their exports remains soft.

As previously discussed, their currency has probably been fundamentally weakening for a while, supported by capital flows rather than trade flows.

This is a bubble like process that can ‘burst’ when the capital flows decelerate with a bout of currency weakness, double digit inflation, and political unrest.

And their next gen western educated economists seem to be doing the traditional interest rate hiking response to inflation they learned in school, which only makes it worse through the ‘fiscal channel’ of higher interest payments by the govt. on the demand side, and rising costs of real investment on the supply side.
A lot more evidence of an inflation problem here.

Market forces may be at work forcing ‘currency adjustment’ from that angle as China
undergoes the transformation from employment growth from export led growth to employment growth through domestic demand as world demand for their exports remains soft.

As previously discussed, their currency has probably been fundamentally weakening for a while, supported by capital flows rather than trade flows.

This is a bubble like process that can ‘burst’ when the capital flows decelerate with a bout of currency weakness, double digit inflation, and political unrest.

And their next gen western educated economists seem to be doing the traditional interest rate hiking response to inflation they learned in school, which only makes it worse through the ‘fiscal channel’ of higher interest payments by the govt on the demand side, and rising costs of real investment on the supply side.

Headlines:

China Raises Lending, Deposit Rates as Inflation Accelerates
Investors Should Cut China Property Stake, Gave Says
PBOC’s ‘Vicious Cycle’ Worsened by Fed, Yu Says: China Credit
China to Do More to Manage Inflation Expectations, Zhang Writes
World Bank Cuts East Asia Outlook, Warns on ‘Bubbles’
South Korean central bank looks to gold

China Raises Lending, Deposit Rates as Inflation Accelerates

October 19 (Bloomberg) — China raised its benchmark
lending and deposit rates for the first time since 2007 after
inflation accelerated to the fastest pace in 22 months.

The one-year deposit rate will increase to 2.5 percent
from 2.25 percent, effective tomorrow, the People’s Bank of
China said on its website today. The lending rate will
increase to 5.56 percent from 5.31 percent, it said.

China’s inflation quickened to 3.5 percent in August,
highlighting overheating risks that have prompted the
government to curb credit and clamp down on the real-estate
market this year. Higher interest rates may encourage inflows
of speculative capital from abroad, complicating management
of the fastest-growing major economy.

“Policy makers need to better anchor inflation
expectations by boosting real interest rates,” Liu Li-Gang,
a Hong Kong-based economist at Australia and New Zealand
Banking Group Ltd., said before today’s release.

China last raised benchmark rates in December 2007, with
central bank Deputy Governor Zhu Min saying on March 25 that
rates are a “heavy-duty weapon” and alternative measures
were working well.

Today’s move came after two surveys showed manufacturing
accelerated in September and input prices jumped, signaling
stabilizing growth and inflation pressures.

Global Recovery

“China would be wise to raise rates,” Dariusz
Kowalczyk, a Hong Kong-based senior economist at Credit
Agricole, said ahead of today’s announcement. “It has led
the global recovery and yet is one of only a few emerging
Asian nations that have not begun to reverse the steep rate
cuts orchestrated during the crisis.”

Chinese officials are grappling with the risk created by
last year’s record 9.59 trillion yuan ($1.4 trillion) credit
boom that fueled the nation’s comeback from the global
recession. China’s property prices in 70 cities rose 9.1
percent in September from a year earlier, according to the
statistics bureau.

China will speed up the introduction of a trial property
tax in some cities and then expand the levy to the whole
country, the government said Sept. 29, without giving a
timetable. The state also told commercial banks to stop
offering loans to buyers of third homes and extended a 30
percent down payment requirement to all first-home buyers.