China taps the brakes, Part II
<br>
Posted by Daniel Altman in Growing pains, It's the economy, stupid2 Comments
<br>
As I wrote last week, China is taking some steps to slow down its own growth. The effects, as Keith Bradsher elaborates this week, may not be the stuff of Washingtonian dreams. But China’s steps could be an important step towards its economic maturity.
<br>
<br>
Since the times of the Roman emperor Tiberius, at least, rulers have understood the importance of monetary policy. When China had a centrally planned economy, money and credit didn’t have such an important role as they do in most market-oriented economies. Government had virtually every possible policy lever at its disposal, so things monetary weren’t as central as they might have been.
<br>
<br>
<br>
Bernanke, Trichet, Fukui… and Zhou. (Greg Baker/AP)Now, the Chinese central bank appears to perceive a risk that the economy will overheat - that demand will rise so quickly that production can’t keep up, and prices will start to spiral upwards. Like any central bank following a mainstream policy plan, it has chosen to raise interest rates in an effort to tighten credit and slow the economy’s growth. Avoiding the potential damage of runaway inflation, the bank has judged, is worth forgoing some extra growth.
<br>
<br>
Higher interest rates could lead more investors to put their money in China, and that could lead to a bigger trade surplus. Yet China, as always, has placed its domestic economic priorities above the concerns of international players. Can you blame them?
<br>
<!-- -->
