A soft landing made in China?

Can China contain its overheating economy? If it does, it will bolster the efforts of Central Banks around the world, making a soft landing for the global economy more likely. But policy-makers have many hurdles to overcome first.

With a second interest rate hike in four months, China is upping the ante in an effort to contain its overheated economy. The success of this operation transcends the direct impacts on the Chinese economy. It bears critically on China's ever-expanding global supply chain - especially commodity producers, the energy complex, and Asian component manufacturers. Moreover, China's tightening actions could reinforce the normalization campaigns of major central banks in the developed world - buttressing the case for a global soft landing. Can China pull it off?

There can be little doubt that China's macro decision makers are taking the overheating problem seriously. President Hu Jintao and Premier Wen Jiabao have taken to the bully pulpit repeatedly in urging a shift to slower growth. The People's Bank of China has led the way, moving to raise both interest rates and bank reserve ratios two times in the past four months. While this is twice the degree of monetary tightening that was imposed in 2004, the last time China was overheated, I agree with Andy Xie that these measures are not sufficient to slow a white-hot Chinese economy.

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