“The situation is excellent; There is great chaos under heaven.”

In China, this is probably the best-remembered and most enduring of the many aphorisms attributed to Chairman Mao. It is also a fitting description of the latest steaming figures for economic growth from the People’s Republic. China’s GDP grew at an annual 11.1 per cent in the first quarter of this year, which is up 0.7 percentage points on the last quarter of 2006. This is not only a reminder that China’s rise is happening at breakneck speed but also a credit to the architects of China’s policy of economic liberalisation.

However, it reinforces fears that Beijing is struggling to manage growing asset bubbles and inflationary pressures. The concern is that the old state levers are increasingly ineffectual in the new market economy. China has raised its benchmark interest rate three times this year. It has also increased the reserve requirements on the commercial banks six times. Nonetheless, inflation has continued to climb and new lending increases unabated. Consumer price inflation rose to 2.7 per cent in the first quarter, gathering pace to 3.3 per cent in March. The banks have issued $180 billion of new loans in the first quarter of this year, which is about double the rate of new lending in 2006.

Beijing has never really had much success using administrative fiat to control lending from the state banks. Local bank managers under pressure from local party bosses to approve pet government projects have long waved through loans and ignored the central government far away.

These days, the commercial imperative to lend is even greater and the power of party constraints even weaker: China offers a handsome rate of return on investment and a low cost of borrowing. With ever more money in circulation, asset inflation is, inevitably, rampant.

The National Bureau of Statistics reported that fixed asset investment in urban areas was up 25.3 per cent in the first quarter of the year.

There will, inevitably, be concerns that China, which has acted as a brake on inflation in the UK and the rest of the West for the past five years, is now going to start exporting its inflation overseas. These fears are real, but prone to being overdone. The main component of rising Chinese prices is the domestic cost of food, not something that hits the British high street. Chinese inflation tipped 5 per cent just a few years ago, even while the Chinese manufacturing sector exported lower prices.

The concern is much more that China — its growth and its society — will become more unstable. The dangers of overheating and a leap in Chinese interest rates have become more acute. The Shanghai stock market fell by nearly 5 per cent yesterday on those worries, rattling international confidence for the second time this year.

The Great Helmsman, at least, would take comfort from this: the command economy is looking increasingly out of control.

London must sour Dubai pitch

Competition among financial exchanges is as good for customers as in any other market. It is particularly powerful now that the exchanges have realised that their business is global. Instead of being local monopolies, any big market can challenge others provided they have a presence in the right time zone. This is leading to a series of unexpected alliances as well as the more high-profile mergers and takeovers.

Commodity markets, being historically more local, have lagged behind stock markets but are catching up fast. ICE’s London market in Brent crude has long been the most important international benchmark for crude oil, thanks to the superior liquidity of its contract, even though Brent itself is now a minor source.

The new battle to establish a market in Arabian Gulf oil is a three-way affair, pitching the American-owned ICE against its old New York rival Nymex but also against a classy but ambitious newcomer, Dubai’s financial centre. Dubai is in this case collaborating with Nymex, which is not happy about ICE’s attempt to forestall a merger between the Chicago Mercantile Exchange and the Chicago Board of Trade.

Delays in Dubai have given London a chance to snap up the trade in advance, provided it can be generated. If ICE can build up a big futures market in the very different, and cheaper, sour crude that comes from the Gulf, it will not just consolidate London’s strength but affect the way the world trades oil.

Although far more sour crude is traded than the sweet crudes of the North Sea and Texas, no big futures market has developed because Saudi Arabia refuses to supply it and prefers direct deals. If the futures market gets big, it will eventually lead to much more Gulf oil being traded through markets, with the possible side-effect of making global oil futures less volatile.

That makes it all the more important that London preempts the future by offering sweet and sour.

Loyalty check

The news that the White House has started looking for replacements for Paul Wolfowitz, who is clinging to his job at the expense of his own reputation and that of the World Bank, is encouraging. It is not only a sign that the Wolfowitz affair will not drag on much longer, but that the Bush Administration heeds international concern about the world’s preeminent development institution.

More significant still, it suggests that President George W. Bush is beginning to appreciate the limitations of loyalty. Mr Bush has prided himself on standing behind his people, come what may. The philosophy of the Bush White House has been that such loyalty breeds loyalty.

But Mr Bush’s loyalty to Donald Rumsfeld, the Defence Secretary, ultimately came at the expense of the efficacy and morale of the Pentagon. It seems Mr Bush is not going to make the same mistake with Mr Wolfowitz.

Many companies prize a similar emphasis on loyalty: BP, Cazenove, Tesco. And executives and managers face decisions on loyalty every day. There are no clear rules on when to choose between personal loyalty and institutional loyalty — except never confuse the two.

—The Secretary of State for the Environment says that he wants to address the problem of global warming. This, surely, means dealing with the single biggest emitter of carbon in the UK, a coal-fired power station responsible for 7 per cent of the country’s energy and 20 million tonnes of carbon emissions a year — equal to the exhaust of 5.5 million cars. So why has David Miliband so far declined to meet Drax?

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