I keep having a trouble with this blog. I post an article and it does not show up. Perhaps its my windows vista computer... So i shall now post all my blogs with my XP computer.

So, I found this interesting article about the Chinese economy. Recently the Chinese Central Bank has increased its interest rates in order to discourage investment. According to Premier Wen Jia Bao, "China's investment growth is too high, lending growth too fast, liquidity excessive and trade and international payments very imbalanced." Truly, China has been showing outstanding economic expansion rates. Just last year, China has economically expanded at a rate of 10.7%. By increasing the interest rates, the Chinese Central Bank has the hopes of discouraging investment; because firms will only invest when the rate of return is greater than the interest rates, an interest in the latter--to a level greater than the former--will discourage firms' investment. However, it must be kept in mind that not all firms face the same rate of returns; some firms may face higher rate of returns while some may face lower rate of returns. As a return, some firms will continue to invest--unhindered--regardless of the increase in the interest rates. Thus, in order to effectively dampen investment, the Chinese Central Bank should consider increasing the interest rates more (not just the 0.27% increase it made on March 18, 2007 to the level of 6.39%). However, of course a dramatic increase in the interest rates may have devastating effects on the Chinese economy; this is perhaps why the Central Bank has gradually increased the interest rates over a course of five times since October 29, 2004.
This recent move by the Central Bank is very important, as investment must be discouraged in China. First off, China's current rate of economic expansion--fueled by investment--is unstable; will China be able to grow at an outstanding rate of 10.7% (this is last year's rate of expansion) ten years from now? I don't think so. In addition, the current rate of economic expansion is environmentally dangerous. According to Jared Diamonds in his "Collapse," China is the greatest polluting nation. As a result, despite China's outstanding economic performance, the benefits can be overshadowed by the costs, in other words the negative externalities, including but not limited to pollution, exacerbation of global warming, air and water pollution (just observe the rate at which cases of asthma occur has increased in Shanghai and how much heavy-metal are found in the blood of fish caught in Chinese waters).