saft2.jpgThe key decision for global markets in 2010 will very likely not be made in Washington but Beijing, where emerging inflation and a property bubble may push China to begin reining in expansionary policies earlier than will suit the developed world.

After returning to a breakneck pace of growth with amazing speed, there are already signs that China is weighing steps to curtail the bank lending that has been a huge source of stimulus, helping to drive property and other asset prices sharply higher.

“We emphasize the role of the reserve-requirement ratio, although the ratio was internationally seen as useless for years and it was thought central banks could abandon the tool,” Chinese central bank Governor Zhou Xiaochuan said at a Beijing conference on Tuesday.

“Besides benchmark interest rates, we also put emphasis on managing the gap between deposit and lending rates”, Zhou said.

Put simply, that implies that China may take steps to limit the amount of money banks are allowed to lend and to drive the margins between what they pay in interest and what they charge higher, both steps which will cool growth and speculation.