"How high are Chinese interest rates?" your correspondent enquired. Unsure of the answer, and a bit embarrassed, the man flicked through a fat statistical report. This was surprising in one way, since the man in question was a senior official of the People's Bank of China, the country's central bank. But it was, perhaps, less surprising in another way, for interest rates play little role in an economy in which credit is allocated with scant regard to its price. And this anecdote demonstrates how hard it will be to cool China's red-hot economy by the means traditional in capitalist economies: charging more for borrowing money. If China's economy is overheating, that will be hugely important for economic prospects worldwide, because the country has accounted for a quarter of global GDP growth (measured at purchasing power parity) over the past five years. The People's Bank is desperate to slow growth in the money supply and in bank lending. To bring down the latter, on April nth it announced that it was raising banks' reserve requirements (the deposits they have to hold at the central bank) from 7% to 7.5%-the third increase in eight months.
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