What's going on?

Interest rates in China are rising sharply, and it�s starting to get the attention of global investors�

What does this mean?

Early last year, China made it easier for banks to lend money to companies by doing things like lowering interest rates and decreasing limits on lending by banks. The plan was to boost flagging economic growth � and it pretty much worked, as Chinese growth improved in 2016 after a few years of slowing down.


However, it appears that the Chinese government is now taking its foot off the economic accelerator. The mechanics of its actions are a little complicated, but they essentially involve increasing interest rates (which makes it more expensive to borrow, and thus spend, money). Case in point: a key Chinese interest rate hit a two-year high on Wednesday.

Why should I care?

For markets: China�s actions are already being reflected in commodity prices.

It�s no coincidence that prices of commodities like copper and iron ore shot higher last year as China took steps to boost its economy. More borrowing allowed Chinese factories to expand production and they bought more raw materials to do so (it also allowed Chinese traders to buy commodities using borrowed money). However, iron ore and copper prices are down sharply over the past six weeks as Chinese interest rates have increased � and shares of mining companies have also been negatively impacted.


The bigger picture: China provided a boost to the global economy last year � but it could be more of a drag this year.

A stronger Chinese economy helps other regions of the world partly because it causes Chinese companies to buy more things from abroad, like goods from German factories and machinery parts from American companies. Higher commodity prices also propel more mining activity, which helps industrial companies, like Caterpillar, that sell the heavy equipment used in mining. So, if China�s growth slows this year, the impact is likely to be felt by investors in other regions too.