Eoin Treacy's view The growth/inflation trade-off that has been so favourable for China in the last decade was further enhanced by the forces of globalization that contributed to a wave of direct investment into the country as part of the process of vertically integrating supply chains between China, the rest of Asia, and the rest of the World.

China enjoyed a huge step-function surge in its trade and export growth that is unlikely to be repeated now against a backdrop of protracted Western de-leveraging and global excess capacity. At the same time, sustained higher commodity prices have damaged China's terms of trade and will make trade less profitable in the future.

The bottom line is that, even if China does not face a systemic crisis as a result of recent credit excess, there are good reasons to suppose that the rebound in activity over the last year has been somewhat unhealthy and cannot be allowed to continue if inflation - whether of consumer or asset

In this context, it is unsurprising that the authorities have resisted rapid appreciation of the renminbi; knowing that domestic credit and local government-sponsored investment must be reined in, they are not anxious to squeeze the export sector any more than they have to.

A face-saving deal with the US has been struck, but the real challenge is to reform the capital allocation process. If this is delayed for long, then melt-down will, eventually, be inevitable.