The news coming out of China this week was not comforting. Despite ongoing efforts bythe central bank to slow down the economy, the inflation rate is accelerating:the government announced that the October consumer price index rose 4.4% over the year, a sharp jump from the 3.6% increase in September and higher than theexpected 4%.
Reserve-requirements on banks were raised yet again. This movecomes on the heels ofthe central bank’s first ratehike in three years. Fearing the central bank might need to dial up policy past the soft-landing scenario, investors stampeded out of the stock market on Nov. 11, leaving it down 5.2% for the biggest one-day drop in over a year.
Perhaps short seller Jim Chanos of Kynikos Associates is on the right track after all. If he is, it means not only Chinese stocks are headed for a rough patch but also commodity stockson exchanges in other countries.
If there is any good news, it could be that Chinas attempts to cool off its overheating economy will open the door to an appreciation in the yuangreater than the baby steps of the past. That could take some of the friction out of deteriorating U.S.-Chinese relations, and help eliminate one of the main stumbling blocks tosustained global growth.