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If there's a crisis in global markets, then no one's told China.
The country's stock market has continued to climb, with barely a blip to register the rollercoaster ride being endured by investors in almost every other nation.
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On top of that, at a time when most central banks are pumping money into their financial systems, and are desperate to cut rates, China has just raised its key interest rates, for the fourth time this year.
China's big problem at the moment isn't the credit crunch it's inflation.
The trouble is, China's big problem could soon become our big problem too
Amid the chaos of the credit crunch, China's Shanghai A-share market is up 85% on the year, and continues to hit all-time highs on an almost daily basis.
Meanwhile, the country has just lifted its interest rates again. Its deposit rate rose to 3.6%, while its lending rate rose to 7.02%.
With annual economic growth running at more than 11%, China's biggest worry at the moment is a steadily growing inflation problem. And with annual inflation running at 5.6% against a target of 3%, China's inflation problem is worse than most. The main culprit is soaring food prices - now up 15.4% on the year, driven in part by a huge jump in pork prices (up around 86% on the year), which has been caused by floods in the south, drought in the north, and losses of pigs to disease.
Of course, this small hike is unlikely to have much impact on either the stock market or inflation the interest that bank accounts pay is still negative in real terms, so no one in their right mind wants to keep their money on deposit. That means spending it, or investing it.
So why should China's inflation problem worry us particularly at the moment, when we seem to have so much else to worry about?
Well, the trouble is that the rest of the world has been relying to a great extent on cheap Chinese manufacturing to supply us with a constant source of inexpensive consumer goods. This China effect' has helped to offset the surge in oil prices and household bills in recent years, which has in turn allowed central banks to keep interest rates unusually low without sparking inflation in the West.
But if prices start to rise seriously in China, then exports won't be able to stay cheap for long. There's signs that this is already happening. Chinese workers' wages rose 21% in the first quarter compared to last year. Companies are complaining of skill shortages and high staff turnover. With oil and raw material costs rising too, Chinese factories will be hard put not to pass their costs onto their customers.
Indeed, the most recent statistics show that the cost of imports from China in the US have risen in dollar terms for three straight months now. The price of imports in July was up 0.9% on a year ago the highest ever rise.
Other risks include the constant pressure from America in particular on China to allow its currency, the yuan, to strengthen. The US argues that the yuan (which is only allowed to trade within very tight bands) is being kept artificially low, which puts its own manufacturers at a disadvantage.
Of course, the trouble is that if the yuan goes up, the price of Chinese imports will also rise further. And the gap in prices between US-manufactured and Chinese-manufactured goods will still be huge.
And then there's protectionism. With the recent scares over Chinese toys and various other imports, politicians again particularly in the US, with an election coming up are more inclined to engage in a bit of populist "China-bashing".
As Diana Choyleva of Lombard Street Research pointed out in a recent note, all these factors suggest that whatever happens, China is turning from being a deflationary force to an inflationary one. Either the yuan will appreciate rapidly, driving up the cost of imports; Chinese producers will pass on rising input costs to consumers, which is again inflationary, or there'll be a protectionist backlash, tariffs are imposed, and suddenly there won't be any cheap imports to be had anymore. Or perhaps even all three.
Meanwhile, central banks in the West are probably hoping they might be able to cut interest rates rather than raise them, as the subprime crisis unfolds. But if China starts exporting inflation, the option of pumping cheap money back into the system will suddenly become much harder to fall back on.
But then, that's not China's problem it's ours.
Turning to the wider markets...
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After an especially volatile day, the FTSE 100 closed 7 points higher, at 6,086. Miner BHP Billiton led the footsie risers with gains of over 2% ahead of today's full-year results, but the sector as a whole was mixed. Persimmon was among the day's biggest fallers despite on-target results on concerns over the state of the housing market. Peer Barratt Developments was also lower. For a full market report, see: London market close.
Elsewhere in Europe, the Paris CAC-40 closed 19 points higher, at 5,418, and the DAX-30 added 17 points to end the day at 7,424.
On Wall Street, stocks closed mixed as investors attempted to decode signals from the Fed as to whether it would act again to safeguard markets. The Dow Jones was 30 points higher, at 13,109. The S&P 500 was one point higher, at 1,447. And the tech-heavy Nasdaq was up 12 points to 2,521.
In Asia, the Nikkei closed flat at 15,900. The Hang Seng was boosted by the Chinese government's decision to go ahead with a pilot programme allowing citizens to trade directly in overseas markets. The Hong Kong index had risen by as much as 591 to 22,321 today.
As it became increasingly clear that Hurricane Dean would avoid oil installations, futures fell yesterday. Crude oil was at $69.82 this morning whilst Brent spot was at $68.08.
Spot gold was little-changed at $656.10 this morning and silver was at $11.55.
Turning to the foreign exchange market, the pound was at 1.9847 against the dollar and 1.4712 against the euro. And the dollar was at 0.7410 against the euro and 114.98 against the Japanese yen.
And in London this morning, miner BHP Billiton reported a 19% increase in H2 earnings thanks to soaring metals prices. Between January and June, net profit rose to $7.2bn compared to $6.1bn over the same period last year. Full year net profit was $13.68bn, an eight consecutive record for the company. BHP Billiton shares had risen by as much as 3% in early trade.
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