The bind that China is in

In this blog post, Chinese Confusions – NYTimes.com, Paul Krugman sums up the bind the Chinese are in economically and politically.

But political considerations seem to be ruling out all the reasonable responses. They won’t revalue, because that would hurt politically influential exporters. They’re reluctant to raise interest rates, because that would hurt politically influential real estate developers. They’re trying to impose quantitative limits on credit, but are finding that borrowers have enough influence to circumvent the limits. And now they’re trying price controls — which will inevitably come apart at the seams unless they do something about the underlying pressures.

They can’t revalue, raise interest rates, limit credit, or do price controls. Something will have to give, and when it does, it will set off a series of events that will result in big changes there. China is always interesting to watch; 2011 will be no exception.