Let's analyze the facts. Chinese interest rates matter to the world only to the extent that they impact Chinese growth. Chinese growth is very important for global growth and inflation. But a worry about China's growth at this time is unwarranted. China needs to grow, and grow at a high single-digit rate to absorb the vast number of rural migrants pouring into the cities everyday. It is the key to the legitimacy of the Communist Party. Other issues like huge foreign reserve, current account surplus, pollution, human rights et. al. are secondary. So I won't lose my sleep over the China's economy.
Interest rates in China are very low. The benchmark rate, the so-called 12-month lending rate is at only 6.39% compared to 10%+ growth in real GDP (see Figure). A rule of thumb says that equilibrium real rate should be equal to real GDP growth. So if anything, China's rate should be higher (in fact at least double the current rate if we take into account 3.3% CPI) notwithstanding today's strong GDP number. Btw, the Economist magazine argued for higher rate in its Mar 22 issue. The article also discussed why Chinese monetary policymarkers have penchant to change rates in 27bp increments versus 25bp increments by their western counterparts (read the article).
