Carnegie Endowment for International Peace
Rising inflation rates will likely trigger a decline in real interest rates, further decreasing the cost of capital and worsening the imbalance between China’s national GDP and average household income.
Shanghai’s markets will go up and down, but they are not driven by investor evaluation of long-term growth prospects. China does not yet posses the tools to make such evaluation useful, so be careful about reading too much into the stock market numbers.
The Euro crisis, rather than reducing the urgency for China to revalue its currency and adjust its trade policy, may in fact require that China react much more aggressively than originally planned.
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