China's monetary balancing act getting harder

Shanghai

CHINA'S central bank faces a dilemma: raise borrowing costs and potentially undermine the nascent economic recovery or hold firm and risk spurring capital outflows as Federal Reserve policy tightening cuts into the country's interest-rate advantage.

The People's Bank of China is trying to take the middle road, boosting money-market rates as a way of containing company leverage, while allowing bank borrowing to largely continue unchecked. At the same time, the authorities have ramped up capital controls to quell outflows after the yuan's biggest annual decline in more than 20 years.