About the chinese 5.1% inflation. What should we be afraid of?

If China overdoes its tightening, the market will certainly be afraid as that would hinder chinese growth.

The Chinese has already tighten bank lending by increasing the Required Reserves by 50 basis point.

What China can do next is either to allow its YUAN to appreciate more or increase interest rates.

Why YUAN appreciation will help decrease inflation?

Higher YUAN means they can now afford imports. These import prices becomes cheaper than their own industries, and thus put pressure on prices.
- MORE competition
- Their EXPORTS become expensive to the rest of the world, resulting in lower production at home.
- Decrease in US holdings.

In my view, it is best if China revalues its currency. This would be a better way to curb inflation than to increase interest rates which would cost jobs and growth.

Currency appreciation allows growth to continue as industries can buy commodities at a cheaper price, and perhaps pass on the savings to consumers too (lowering the inflation pressure significantly).

Hopefully, China makes a statement soon to revalue its currency and booyah to the stock market. We should see 12000 by christmas with this statement!