As the US and Europe struggle to get their economies rolling again, China is having the opposite problem: figuring out how to keep its revved-up growth engine from generating runaway inflation.
The latest sign that things were moving too fast came on Sunday, when China?s central bank ordered the biggest banks to set aside more cash reserves.
The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China?s economy was growing at an annual rate of 9.7%, by far the strongest performance by any of the world?s biggest economies.
Because China is now the world?s second largest economy, after the US, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.
High inflation endangers China?s status as the low-cost workshop for the world. And if the government?s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses ? whether multinationals like General Electric or copper miners in Chile ? that have been counting on China for growth.
Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and West Asia have become the focus of popular uprisings.
?China?s inflation is a big concern, and actual numbers are worse than officially reported,? said Carmen M Reinhart, economist, Peterson Institute for International Economics in Washington.
She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.
Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4%, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).
The decision on Sunday to raise the capital reserve ratio for banks, to 20.5% of their cash, was the fourth such increase this year.
The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the US, where inflation is low (the underlying annual inflation rate was 1.2% last month) and where the debate centres on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.