A Stupid Move

China Touches the Brakes With Higher Interest Rates:

Larry Lang, chairman of the finance department at Chinese University of Hong Kong, said the increase was misguided. The largest borrowers in China have traditionally been local governments spending money on major public-works projects, and state-owned firms kept alive to preserve jobs, he said. If interest rates are higher, those sorts of borrowers will continue to draw credit, regardless of their ability to repay their loans, Lang said. Meanwhile, China's emerging private sector, increasingly the source of new jobs and profitable businesses, will have a more difficult time getting its hands on credit.

"This is a very stupid move," Lang said. "It won't affect over-investment, but it will hurt the private sector and it will hit the stock market."