Why China raised its interest rates

Rob Schmitz Oct 20, 2010
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Why China raised its interest rates

Rob Schmitz Oct 20, 2010
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STEVE CHIOTAKIS: Today, China’s central bank raised interest rates for the first time in nearly three year. The official explanation was to combat inflation and to “soak up excessive market liquidity.” Marketplace’s China Bureau Chief Rob Schmitz says it’s just another way to say, “We need to slow this economy down.” Rob Schmitz reports.


ROB SCHMITZ: The quarter of a percent hike comes one day before China’s set to release third quarter GDP growth figures. Coincidence? Nope.

ANDY ROTHMAN: The data’s going to be a little bit hotter than they would like, and they’re signaling they’d like things to cool off a little bit more.

Economist Andy Rothman says China’s on its way to ending the year with double-digit GDP growth. For a country like the U.S., that would be great. Here’s why it’s not for China.

ROTHMAN: Rising inequality, damage to China’s environment, a lot of dependence on imported energy and raw materials.

Not too long ago, China was in double-digit GDP growth territory with help from exports to Europe and the U.S. Now there are other factors, including a red-hot property market some fear could crash. Rothman thinks this rate hike will have a gradual impact-lending in China follows strict quotas set by the Communist Party. This lack of a market-driven banking system means interest rate hikes here tend not to ripple throughout the economy as much as they do in the U.S.

In Shanghai, I’m Rob Schmitz for Marketplace.

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