Chinese stocks such as Lentuo International (NYSE: LAS), UT Starcom (NASDAQ: UTSI), and Bona Film Group Limited (NASDAQ: BONA) seem to be only wanted by those desiring to establish a short position.  But the Chinese Government has begun to fight back to defend its currency, and ultimately the share prices of its publicly traded companies, by raising interest rates again.

The People’s Bank of China raised interest rates for a third time this year, by 2five basis points.  Inflation is at is highest in China since July 2008.  Food prices in China are rising at a 10 percent pace annually.  As discussed in a recent article on www.smallcapnetwork.com, futures for Australian stocks fell as a result of the move by the central bank in China, which pointed to the gloomy outlook for the Yuan and Chinese stocks.

According to an article on WSJ.com on June 21, major investors are betting against the Chinese Yuan.  The interest rate increase confirms their wager that the Yuan is weak.  One of the first pages in the playbook is to raise interest rates to attract more foreign capital, increasing the value of the currency.

Strengthening the Yuan will augment Chinese stock prices for a montage of reasons.  The economic and financial news emanating from China is negative, to say the least.  Economically, there is massive debt, high inflation, civil unrest and a real estate sector heading south.  Financially, fraud is endemic.  A weak currency will only serve to compound these problems.  When a country loses control of its currency to speculators maneuvering against it, the end results are never positive.  The huge purchases of gold by individuals in China is manifest of their lack of confidence in the fiat money.