Heading off inflation

China has proved its increasing importance to the world economy by considerably jolting the world financial markets with its first interest rate hike in nearly three years.

The worldwide sell-off, following the announcement by China's central bank on Tuesday that it would raise key rates by a quarter percentage point, clearly revealed global concerns that higher rates could slow Chinese growth and thus impede global recovery. Given their high expectations of Chinese growth as a key driver of the global economy, such a knee-jerk reaction by overseas investors is fairly understandable.

However, such a cursory reading means that, those investors who see it as a sign that China's economic growth will lose steam soon, have significantly underestimated Chinese policymakers' resolution to fight inflation head-on.