From the Readers

Call to raise interest rates

(China Daily)
Updated: 2010-11-03 07:56

Comment on "Economic growth keeps momentum" (China Daily, Oct 29)

The article correctly identifies inflation as a big problem for China. In fact, inflation in China is higher than that shown by the consumer price index (CPI), because the CPI measures only a limited range of consumer products, particularly food.

One reason for the high inflation is that interest rates in China are too low for an economy growing at 12 percent or higher in terms of money. And interest rates are low because the government controls the movement of the yuan against the United States dollar, because of which China's interest rates have to stay roughly in line with that of the US.

To control and balance the economy, it is important for the government to allow interest rates to rise significantly.

This will give Chinese households a better deal for saving money and will help control the prices of real estate and other assets. In turn, this means letting the yuan trade more freely.

And if the yuan rises in the process, Chinese exporters with thin margins should add more value to their products - by improving or changing their products and business models - to sell them overseas at higher prices.

Strong economies have strong currencies. Higher interest rates and a rising currency will help China to rebalance its economy toward stronger domestic demand, stimulating value-added products and innovations, and making the economy more sustainable and less prone to bubbles and a crash.

GILES CHANCE, via e-mail

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(China Daily 11/03/2010 page9)