China is now moving into the stage where they have to choose between lower interest rates, inflation, and a currency collapse or higher interest rates and and a collapse in their economy

Things are really heating up now. China had throttled their financial system over the past month when they rose yuan interest rates in Hong Kong. To ease the situation on the mainland, they injected a ton of M0 with repos. Last night, they signaled that they were withdrawing that excess liquidity to the market, and short term rates on the mainland spiked to 10 year highs. They don't know it yet, but the market is putting them to a decision. They can either choose low rates which will cause the currency to collapse yet allow their economy to survive in the short run or raise rates to defend the yuan and crush the economy. This is just short run drama until the financial collapse begins. They'll swing back and forth from loose to tight monetary policy until they run out of money, or the Chinese people force the situation by panicking. With each new week that passes, things should get more desperate there.