What's been driving the overheating of China's economy and could an appreciation of the currency change this
Gong The most immediate cause is the growth in supply, in the form of strong fixed investment growth, often by provincial governments. More fundamentally, the huge excess liquidity in the banking system is the most important force behind the overheating.
If the forex regime issue isn't addressed, then excess liquidity will continue to slosh around China's closed banking system, adding to overheating.
That makes a soft landing more difficult.
Liquidity is bad for the banks too. They become eager to lend it...