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China struggles with rising inflation rates

by Jorge Hernandez on July 6, 2011

For the third time this year, China is moving to raise interest rates in order to avoid the risk of high inflation. This marks a potential worry for investors who are relying on China, the world's second-largest economy, to help pull Europe and the United States out of the recession. 

In fact, some have already poured their money back into American dollars and Swiss francs due to fears raised by the government's latest maneuver. Small and medium-sized businesses in the nation are suffering as well, and are unable to acquire enough credit to continue operating at a healthy rate.

In May, China's consumer price index rose by 5.5 percent, a significant spike in costs that reached around 6 percent at the end of June. Further data on the country's inflation will be available on July 15.

"With inflation over 6 percent in June, the focus on inflation is understandable," economist Mark Williams said.

There have been increasing doubts about China's economic sustainability, especially as middle-class citizens become the norm and strive to take white-collar jobs, rather than the manufacturing and other industrial ones that are much more available.

"If you choose to stay in Beijing after graduation, and say, you earn 4,000 to 5,000 yuan every month and buy a house inside the sixth ring road by getting a mortgage, you may end up paying off your loans in your 50s, meaning that you have to suffer being a mortgage slave for 30 years," one undergraduate from Beijing Jiaotong told The People's Daily.

The main problem is that there are too many college graduates for the occupations that require a college degree. China's main source of economic growth remains its manufacturing and export sector, and until that changes, many Chinese graduates may be left on the sidelines, according to BusinessInsider.

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