Critical Analysis of Baby Steps toward Tighter Money in China Article Essay

Critical Analysis of Baby Steps toward Tighter Money in China Article - Essay Example According to Silk, constraining lending may actually fit the authorities objective of driving the economy towards consumption-led growth instead of an investment-driven model, though it may not be an easy task as such (Web). He argues that the action by the central bank may do more harm to the already shaken economy which was upset by serious cash crunch earlier this year. The People’s Bank of China seems to have number explanations to be more aggressive including the expected rise in Consumer price inflation which was 3.1% and hiking house prices which were 8.2% in September. Also, the U.S is also pumping more capital in China as a way of keeping her (U.S) economic stimulus in place and this may really heighten inflation in China. It is therefore important for the PBOC to pull out these cash from her systems as a way of controlling her economy. However, Silk argues that the good news is that China is an emerging economy and therefore it may endure the economic challenge curre ntly than earlier in the year (Web). The People’s Bank of China sapped 58 billion Yuan from her interbank market thus making the seven days reverse repo rate go up by 4.7%. It finally led to a loosening of liquidity and the move was interpreted by some economist as a way of easing lending. Move to control the rising debt by the PBOC has had several effects including rising in interest rates and tumbling of stock markets. Debt has experienced a rapid growth which greatly interfered with social financing as well as outstanding borrowings by both businesses and households which really worries the economy. However, there is a mixed reaction from the optimists and the pessimists of the government move to curb debt (Silk Web). The fact that PBOC should instill more balanced lending is indeed very wise but the question lingering is the depth of the control. Actually, this article points out that one of the tests facing emerging China’s economy, although a few are predominantl y lethal.  Ã‚