Kiyoko Fujimura
January 12, 2010

After flooding the economy with cash since August, the Chinese government has done a fast 180 and reigned in its stimulus effort – signaling fears of inflation.

China’s injections of cash were certainly understandable; economists really had no idea how bad this global recession would be. China kept interest rates low to encourage growth. The policy worked well; China exceeded growth projections, property prices sizzled in major cities, and there has been a rush of inward investment. But, the government must now scramble to deflect inflation and asset price bubbles.

A sharp spike in bank lending starting in late 2008 was the central element to Beijing’s effort to escape the global financial crisis. The forceful policy may have worked too well, allowing companies to gorge on easy credit and speculate on properties and stocks. Wall Street Journal

I guess speculators have to look to other emerging economies for easy money in real estate markets. China’s central bank has made it clear: it is having none of it anymore.

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