China ignores IMF warnings, continues massive stimulus spending

As China moves closer to overtaking Japan as the world's second-largest economy, it's flexing its new found muscle and ignoring warnings from the International Monetary Fund regarding its credit growth rate and the value of the yuan. China began a 4 trillion yuan ($586 billion) two-year stimulus in November 2008 and plans to continue on that path.

Since China ties the yuan to the U.S. dollar, that stimulus is essentially being done at our 0% interest rate -- reasonable in our weak economy, potentially dangerous in China's surging one. Many worry that inflation will take off if China doesn't put on the brakes sooner. Others worry that China could be heading into an asset bubble that could magnify its problems down the road. But right now, China is enjoying a high level of investment in desperately needed infrastructure improvements. In fact, 7.3 percentage points of its 7.7% increase in gross domestic product came from investments in infrastructure improvements in the first nine months of 2009.