China Overheats

Both second quarter GDP growth and June industrial production and consumer price index for China came in way above analysts expectations. Real GDP growth in the second quarter was 11.9%, with growth likely being especially strong in June as industrial production growth rose to 19.4%. Meanwhile consumer price inflation accelerated to 4.4% with particularly food prices rising fast.

All regular readers of this blog of course knows what I think needs to be done: accelerate the pace of yuan appreciation and preferably stop cold foreign exchange intervention. This would help solve virtually all of their problems: it would ease trade tensions and reduce the excessive trade surpluses and it would also reduce money supply growth which in turn would reduce the problems of overinvestments and rising consumer price inflation. I am somewhat puzzled as to why they don't take such an obviously appropriate action.

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