The Royal Bank of Scotland (RBS.LSE) has warned clients that China risks a sovereign default in 2011 and advised them to take out protection, the Telegraph reported. It said that Beijing will need to take drastic steps to pop a forming credit bubble in order to control inflation. "Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said RBS emerging markets chief Tim Ash. The inflation rate is of especial concern: Official statistics say inflation was at 4.4% in October but many believe the true rate is higher, noting that vegetable prices increased 20% in the same month. RBS recommends investors buy credit-default swaps to insure against the risk of a hard landing when the central government implements a "prudent" monetary policy next year.
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