Andrew:

That is a very interesting question, one that I don't know the answer to. One one hand, controlling the currency is just one form of market manipulation among many that governments use, and I don't know exactly how much more dangerous it is than other forms. I imagine it depends a lot on externalities. Remember that the Fed in this country exists primarily to practice a more limited form of currency manipulation through its control of available dollars in the market place.

The Chinese are certainly very concerned about inflation, which is what undermined the currency controls practiced in some (if not all) of the other situations you mentioned. As I understand it, inflation in this circumstance is essentially the market trying to correct itself against the manipulation, but that may either be an oversimplification or wholly incorrect, I will have to investigate. The Chinese central bank has raised interest rates numerous times of late in an attempt to slow growth and control inflation (no one thinks that 9% growth is sustainable. Of course, there was a time when no American economist thought that 4% growth was sustainable).

I have wanted to post here about how closely we need to watch the China experiment in general, not only for lessons about the traditional understanding of hybrid economies but also about the often cited link between free markets and open societies. The relationship between the west and China is essentially a two sided experiment. On the one hand, the Chinese have hypothesized that they can have relatively open markets while continuing to have a one party hegemony. The west has hypothesized that either an open market cannot be sustained outside of an open society or that open markets will force the society to open up. Its an amazing experiment.