China said on Thursday that the economy grew 11.5% year-on-year in the third quarter, slightly lower than the second quarter’s 11.9%. Inflation was up 6.2% from a year earlier, down from 6.5% in August. The news unleashed different reactions. Some predicted China’s Central Bank would increase interest rates immediately; others were more optimistic that the economy is finally showing signs of a gradual slow down.

Those who anticipated a rate rise should bear in mind a caveat. China had increased the key one-year bank-lending rate five times to 7.29% this year, each time the stock market soared on the news. In the first ten month this year, fixed asset investment rose 26.9% to $1.2 trillion, among which real estate investment surged 31.4% to $256 million. The rate hikes seemed unable to put a brake on China’s hot economy.

One explanation could be that an interest rate increase in China is more symbolic than functional, at least under the current market condition. The two main drivers of China’s economy have been investment and export. In the first nine months, actual foreign direct investment grew at 11% to $6 billion, less than half of fixed asset investment growth. China’s investment boom is more and more driving by domestic investment in property and infrastructure, and the real estate developers and local governments are unlikely to have a 27 basis point interest rise stop their party. On the other hand, factories continue to churn out goods. China’s export rose 26.5% in the first ten months.

A higher interest rate has only nominal effect on China’s money supply. An interest rate adjustment, when working in a market economy, alters money supply and therefore affects consumption and investment. But China’s Central Bank had issued massive amount of sterilization bills to prevent Yuan’s appreciation. In 2006, such bills amounted to $414 billion, almost a quarter of the year’s M1 supply. The effect of an interest rates adjustment on money supply could almost be ignored.

Increasing interest rates also does little to affect consumer prices as China imposes direct price control on core consuming goods, such as gasoline, medicines, rice and cotton. When oil surged toward $95 per barrel last week, the price in China was fixed around $60. The government last month released reserve pigs to retain pork prices. When prices are unable to reflect market conditions, the effect of interest rates adjustments will be compromised.

No evidence suggests that higher interest rates are discouraging bank lending. Chinese banks made $471 billion new loans in the first 10 months, a 15.6% increase from a year earlier. Similarly, households are unlikely to save more because of higher interest rates. With China’s stock market red hot, millions of Chinese are betting on the stock market.

While people await the Federal Reserve’s decision at the end of the month, it is important to recognize that a rate hike in China may mean different things. Rising interest rates is a good gesture of the Chinese government. But as long as China’s economy maintains these characters, raising interest rates is the wrong cure for the problem.