That is because the higher Chinese deposit rates climb, the more attractive it becomes for speculators to take large positions in the yuan in hopes that China's currency will strengthen against the dollar. Such risks have increased now that the U.S. Federal Reserve has taken a pause after two years of increasing rates, making it less attractive to hold dollars.

The upshot: China's leaders might be forced to rely even more heavily on administrative methods-such as curbs on the supply of new land for construction-to slow investment and head off overheating, the economists say.

The move by the People's Bank of China, which became effective Aug. 19, raised benchmark one-year bank-lending rates by 0.27 percentage point to 6.12%. (The U.S. Fed's target for short-term interest rates is 5.25%.) The Chinese central bank also increased rates paid on one-year deposits by the same magnitude, to 2.52%.

The central bank last pushed up lending rates in April, also by 0.27 percentage point, but at that time it left deposit rates unchanged.

With U.S. deposit rates significantly higher than Chinese ones, currency speculators pay a substantial price for moving out of dollars and into Chinese deposits for a bet on China revaluing the yuan. If China continues to raise deposit rates, the bet would become cheaper.

Speculators think that sooner or later, Beijing is going to be forced to combat its growing trade surplus by letting the currency appreciate, which would give them a big profit on yuan purchases.

Many economists believe Beijing will be forced to allow faster currency appreciation because the trade surplus is flooding the economy with cash that eventually leaks into the banking system and is lent out.

Hong Liang, China economist with Goldman Sachs in Hong Kong, says the two-pronged increase this time-raising both deposit as well as lending rates-suggests the central bank is worried Chinese are pulling their savings out of banks too quickly, threatening financial stability.

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