So Beijing plans to tighten monetary policy. This is hardly news. Officials from President Hu Jintao down have been banging on about the need to control inflation and economic overheating in almost every statement they have made for the past week or so.
As always, however, declaring an intention is the easy part. Putting it into action is where things get tricky.
Of course, in other countries deciding on monetary policy is a matter for an independent central bank, not the top committee of the ruling party, but we are talking about the mainland here.
Equally, when other countries want to tighten monetary policy they jack up interest rates to cool things down, or in some cases steer the value of their currency higher. On the mainland, both those solutions cause problems.
Nevertheless, the authorities need to do something. The economy is growing at a breakneck speed of 11.5 per cent per annum, and prices are up 6.5 per cent over last year.
Because of the artificial undervaluation of the yuan, around US$40 billion a month is flooding into the country, curbing the central bank's ability to manage domestic liquidity. Money supply is up 18.5 per cent over a year ago, bank lending has grown 18 per cent, and investment in new factories, offices machinery and the like has increased by 30 per cent.
There is a bubble in the stock markets, and property prices are shooting up. In short, the nation's economy is overheating.
