flation during
             the first quarter was running at an annualized rate of over 12 percent. "If
             that trend continues, we will be in the position to raise interest rates,"
             China's leaders are still deciding whether to move toward full
             convertibility of its currency, the renminbi. U.S. officials are proponents
             of this plan, believing it would lead to an appreciation of 20 percent or
             more that would slow China's exports and growth rate (Ignatius, 2004).
             According to central bank governor Zhou Xiaochuan, "building a more market-
             driven trading system for the renminbi is now a task of top priority."
             However, Li said he worried that full convertibility could be destabilizing
             by allowing surges of speculative capital in and out of China.
             Fixed asset investments are currently growing at a rate of up to 53 percent
             (Yahoo Finance, 2004). At this rate of growth, fixed assets investments are
             growing much faster relative to China's economy (China's economy is
             forecasted to be growing at about 9 percent). These figures show that a
             risk exists that factories and properties currently being built, will be
             under-utilized even as overall demand increases. The calculation of fixed
             asset investments include the expenditure on factories, roads and power
             stations. The government wants to limit investments in the steel, cement
             and aluminum industries. As a result, economists have warned investors that
             the Chinese economy may be overheating.
             According to Sigrist (2004): "This year's bear market in equities is due to
             above-average strong growth in the Chinese economy. This may seem a
             paradox, but it is easy to explain: Chinese GDP grew by 9.1 percent last
             year, despite a collapse in consumer spending during the first half of the
             year because of the SARS epidemic. During the same period, OECD countries
             enjoyed GDP growth of only 2.5 percent. In the first quarter of 2004,
             China's GDP grew by an accelerated 9.7 pe...