Though admittedly no one really knows what goes on behind the scenes in Beijing, the recent decision to keep rates on hold despite a 28-month high in inflation suggests that growth still trumps price stability even as President Hu mentioned last week that managing the latter was a “priority.”  To some analysts this reluctance to tighten monetary policy is a deeply rooted, psychological one that extends across much of Asia.  An Economist piece last week, for instance, notes that “Asia’s policymakers remain ‘paranoid about growth scares from the West.’  They do not want to repeat the mistake of 2008, when they were caught tightening even as the financial crisis struck.”  At the same time, Goldman Sachs projects, much of the price run-up may naturally subside as America’s inventory build-up, which traditionally feeds Asian component-makers and which has been on a tear over the past year, subsides.  If not, Beijing may be in fact be just as guilty as the U.S. of ‘kicking the can down the road’, though as long as the two act in tandem perception can theoretically trump reality ad infinitum, a ploy not likely lost on Messrs Hu and Obama.  That said, eventual rate hikes are inevitable

Regardless, China’s rate decision was a big shot for risk trades and in particular could exacerbate certain markets such as a copper that some warn are already stretched.  Copper climbed to a record $9,267.50 a ton on Dec. 14 and has gained 22 percent this year as China-led demand outpaces supply (see graph).  And while some analysts note that alumnium may in fact have greater upside at this point than copper given its role as an alternative, the outlook remains strong for copper as well.  This should benefit frontier markets like Zambia in particular, the continent’s top copper producer.  Against this backdrop analysts at Barclays expect the country’s current account deficit to halve in 2011 (from a projected 2.3% of GDP) while FDI-supported output growth continues–inflows mainly into the mining and manufacturing sectors reached record levels totalling USD4.3bn (27% of GDP) in 2010, more than double the total FDI inflow of USD1.8bn in 2009,” analysts wrote.  This has largely been a function of Zambia’s courtship of Chinese investment into two “Special Economic Zones”, one serving the mining industry in Chambishi in the northern Copper Belt, and the other a nascent manufacturing-for-export hub near the capital.  Assuming the copper price acts as expected, look to see how Zambia’s maiden USD500mn Eurobond in H111 reacts.