China marketWhat turned out to be a routine mid-recovery slowdown caused plenty of anxiety over the summer, inspiring some bearish analysts to predict a double-dip recession. Now, even as the U.S. economy shows signs of regaining momentum, investors find themselves facing the same macroeconomic worries that helped fuel much of the last major sell-off.

As Ireland negotiates an aid package with European Union and International Monetary Fund representatives, the eurozone debt crisis is weighing on sentiment once again. Perhaps most of all, skittishness about China's rapidly expanding economy is returning to center stage after soaring inflation data raised worries that Beijing would take dramatic steps to cool its economy.

And indeed it did. For the second time in two weeks, China ordered banks to raise reserve requirements in a bid to reduce liquidity and rein in lending. The move follows growing talk of price controls amid rapidly rising food costs. Investors fear that a series of sharp interest rate hikes could be next in the cards Beijing plays.

Similar moves led to a dramatic slowdown in growth during 2008 and would have only a bigger impact on world markets now given China's growing importance on the global stage.

Beijing Has Room to Maneuver

Much like the situation unfolding in the eurozone, though, investors would be wise to take the motivations of the actors involved into consideration and avoid drawing any quick conclusions. Markets may get rattled about a meltdown in China, and high-profile hedge fund managers looking to profit massively from this turbulence could help fan the flames. But Beijing is likely to take a more measured response to fight inflation in a situation that remains manageable, at least for now.

Inflation hit a 25-month high of 4.4% last week, with food prices rocketing up 10.1% at an annualized rate. But inflation still isn't as persistent as it was starting in 2007, when the consumer price index was rising at rate above 5% and eventually peaked at 8.7%, as analysts at political risk consultancy Eurasia Group wrote in a note to clients last week.

"Recent inflation data has not passed a point that China's bureaucracy considers to be unmanageable or that China's leadership consider to be a political vulnerability," the Eurasia Group said.

Chinese leaders have grown more cautious about monetary tightening after throwing in the kitchen sink during 2008. And policymaking has become more complex lately, with a greater divergence of views taken into account, making dramatic hikes less likely, the analysts note.

Increasingly Skilled Technocrats

While many in the markets have worried that Beijing would reach for the chainsaw to fight inflation, it's more likely to go for the scalpel instead. Chinese policymakers need to demonstrate that they're working to rein in surging food costs with a mix of caps and subsidies that will not fundamentally upset the national economy or global markets.

"China's leaders are most likely to deploy political signals, aimed at persuading segments of the population hit hardest by rising food costs that Beijing is on the case in addressing the needs of China's vulnerable," Eurasia Group analysts wrote.

Given the lack of transparency, thanks to China's autocratic ways, poor visibility helps fuel investor suspicions about the country. Despite those concerns, the Chinese leadership has proven to consist of remarkably competent technocrats.

China has recently demonstrated a flair for calculated diplomacy, and billionaire investor George Soros recently said the country now has a better functioning government than the U.S.

Fears of a Chinese collapse could again rattle markets. But when it comes to managing its affairs, the country should get the benefit of the doubt from shrewd investors.

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gerbrick

china is not over heating. the are catching up to the rest of the capitalistic world. we should take advantage of it because they are doing a great job. they will eventually do away with communism.

November 22 2010 at 6:22 PM Report abuse rate up rate down Reply
PAULA

I hate to say it but the people of today do not realize that back then the first Thanksgiving was a celebration of hard work and the new and improved ways these's people, learned about survival. Your right wbearl, people like Obama will not celebrate, this day the same way the common people do, it has no real meaning for people like him, there back then, was no system to prop, you up, which I can assure you Obama and friends took full advantage of like there is today, people have become lazy and dependent on other,s to take care of themselves. I dare say that the people of today could not survive, what the people that built this country went through. It,s a shame to say, I know but I hope you and your,s enjoy what ever it is on Thanks Giving Day.

November 22 2010 at 8:35 AM Report abuse +1 rate up rate down Reply
krazzicraig

Another artical about the world ending . What is interesting is , every politicans net worth has gone up. Wall street and big banks CEOs are doing just great. It is just we the manipulated that may have a problem.

November 22 2010 at 8:31 AM Report abuse +2 rate up rate down Reply
clark8642

China trade surplus with the US is having a detrimental effect on our economy and normal corrective processes such as adjustments in crrency are being thwarted by manipulation. That manipulation would be far more difficult if the Chibese could not recycle their trade surplus by purchasing US Treasuries which we must sell to finance our debt. This is just one more reason why it is critical that we end our chronic deficits. When the Bush tax cuts expire no one should get a new tax cut until we dramatically reduce spending. We cannot afford the huge and chronic deficits that will come if the new tax cuts occur before the spending cuts because the tax cuts are politically easy but the spending side is hard work that politicians on both sides like to avoid. The work of the Presidential commission suggests major cuts in many popular programs. Such changes will not happen without the carrot of new tax cuts or the threat of major new taxes. Our future demands that we start acting responsibly sooner rather than later.

November 22 2010 at 8:22 AM Report abuse +1 rate up rate down Reply
PAULA

p

November 22 2010 at 8:14 AM Report abuse rate up rate down Reply
rutch8

I HAVE $40. TILL THE 1ST OF THE MONTH AND STILL NEED TO BUY THANKSGIVING FOR MY FAMILY. I GIVE THANKS TO ALL THE POLITICIANS FOR THEIR GREED GREED GREED!!!!!!!!!AND HOPE THEY HAVE A HAPPY, FULL BELLIES THANKSGIVING! NOW THEY CAN THANK ME FOR TAKING ALL MY MONEY!

November 22 2010 at 6:36 AM Report abuse +4 rate up rate down Reply
1 reply to rutch8's comment
wbearl

I'm sure the politicians will have a wonderful Thanksgiving. They will be thankful that most Americans are too stupid and/or lazy to vote them out of office. They will give thanks for their great pension, health care and kick backs. Of course our President won't publicly celebrate Thanksgiving because it is a celebration of white people taking over and controlling this country. Thanksgiving isn't about politics, it's about being thankful for what ever you have, no matter how little it may be. It's about being thankful for your family. On the first Thanksgiving life was hard, people had to work hard to survive, there was no government hand outs or safety nets. You worked hard or you died. You worked hard just to survive and those people were celebrating the fact that they had survived and because of help from the locals would have enough to survive the up coming winter.

November 22 2010 at 7:51 AM Report abuse +2 rate up rate down Reply
Robert & Lisa

With all commodity prices having surged over 50% in the past year and almost 10% unemployment we have a repeat of the Jimmy Carter years. Ronald Reagan helped pull us from the abyss last time, who do we have that can do that again? Obama and thugs seem hell bent on keeping us in the abyss.

November 22 2010 at 5:22 AM Report abuse +4 rate up rate down Reply
4 replies to Robert & Lisa's comment
sur

From ground zero in Hong Kong price of Green Mung beans has gone up by 100percent in 18 months at the retail level.If this ain't inflation tell me what is? Next election in India is going to be fought on inflation in food prices and guess what before the election the ruling party is going to raise interest rate big time to ensure prices come down for food for the masses whao really go out to vote. So get ready for interest rises in Asia.

November 22 2010 at 5:00 AM Report abuse +2 rate up rate down Reply
1 reply to sur's comment
Robert & Lisa

Actually, the dollar has gone down in relation to the commodities because our idiot President and his thugs are printing more money which causes inflation. Thanks George Soros, their puppet master.

November 22 2010 at 5:14 AM Report abuse +5 rate up rate down Reply
Rockyraimi

The REAL issue is not about raising taxes for the wealthy. They already pay MOST of the taxes. The problem is the other half of the population that pay NO federal income tax.

November 22 2010 at 3:50 AM Report abuse +7 rate up rate down Reply
ultraz2

Flat tax brakets with NO LOOPHOLES and NO DEDUCTIONS

November 22 2010 at 3:23 AM Report abuse +9 rate up rate down Reply