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Why China's Goldilocks-like economy should ease fears

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China hits the right note China's economy is beginning to take on a Goldilocks feel - not too hot, not too cold - good news for those worried about inflation and arguably better news for those who feared the engine of the global recovery was faltering. A soft landing, in other words.

Statistics released today showed China's economy at a 9.6-per-cent pace in the third quarter from a year earlier, down from 10.3 per cent in the previous three-month period. Numbers for September alone showed industrial output up by 13.3 per cent from a year earlier, slower growth than expected. Consumer prices on an annual basis rose 3.6 per cent, up just slightly from 3.5 per cent.

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Earlier this week, the People's Bank of China raised interest rates for the first time in about three years, sending fears through stock, currency and commodity markets.

"Chinese officials are likely feeling quite pleased with the way the data are playing out," RBC Dominion Securities senior strategist Brian Jackson said in a research note. "Policy measures put in place earlier this year appear to have helped steer the Chinese economy through a middle course between overheating and a serious downturn. This, in turn, indicates that the economy is strong enough to tolerate further gradual policy normalization, in line with recent currency appreciation against the [U.S. dollar]and the decision earlier this week to hike policy rates."

Still, he noted, "with inflation reaching a new high and growth likely to pick up again in coming months, it seems increasingly clear that Beijing still has more to do to keep the Chinese economy on an even keel."

Mark Williams, senior China economist at Capital Economics in London, noted that the rise in inflation was due to food prices. Ignore those costs, he pointed out, and inflation fell for the second month in a row.

"It is certainly not time to worry about overheating," Mr. Williams said. "However, the latest growth figures should at least have reassured policy makers that China's economic slowdown has bottomed out."

G20 to act on currency fight The G20 will pledge to avoid "competitive devaluation" as exchange rates are poised to dominate a two day meeting of finance ministers and central bankers in Gyeongju, South Korea.

When the talks wrap up Saturday afternoon, the G20 will surely agree on wording of some kind on exchange rates, given the attention it is generating around the globe. Yet there is growing worry the G20's talk will be just that amid signs its co-operative spirit is fading, The Globe and Mail's Bill Curry reports from Gyeongju.

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China has shown little interest in allowing its currency to rise and the United States is expected to soon launch another round of quantitative easing, a policy involving bond purchases that will likely devalue the dollar.

FIght for Potash Corp. heats up Saskatchewan Premier Brad Wall said again today that Canada should reject BHP Billiton Ltd.'s hostile takeover bid for one of its jewel resource companies, Potash Corp. of Saskatchewan , saying the deal is unlike any other takeover in the country's history.

"It is a strategic resource and we should act like it. The country should act like it," Mr. Wall said at a luncheon hosted by the Regina Chamber of Commerce.

In London, BHP's CEO marius Kloppers pledged to persuade Saskatchewan and Ottawa to allow it to acquire control.

Mr. Wall said the deal would mean selling off one of the last major mining companies, making such large-scale miners in Canada "an endangered species."

Caterpillar profit surges Caterpillar Inc. , one of those barometers of the economy, posted a sharply higher profit for the third-quarter and raised its full year target.

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Caterpillar, whose equipment is used in sectors like construction and mining, earned $792-million (U.S.) or $1.22 a share, compared to $404-million or 64 cents a year earlier. Revenue climbed 53 per cent.

Sales of machinery surged 84 per cent, with a strong showing in North America at 89 per cent. Demand in developing countries was also particularly strong.

"So far this year, due to higher demand, we have increased our workforce by more than 15,000 people globally, including more than 6,000 full-time employees and 9,000 people added to our flexible workforce," said CEO Doug Oberhelman. "I am pleased that we have put so many people back to work this year, and with continued global economic growth, we will add people in 2011 but remain keenly focused on cost control."

France in turmoil France remains the scene of protests, street battles between police and demonstrators, snarled transportation and empty gas stations.

Marseille's airport was blockaded as the Senate prepared to vote on the key issue in France's austerity drive, raising the retirement age past 60.

Like other European countries that have unveiled harsh austerity measures to bring down the debts they ran up during the crisis, social unrest has been growing in France.

Even though President Nicolas Sarkozy ordered authorities to force strikebound fuel depots to open again, one-quarter of the country's gas stations are still without gas, reports say.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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