Chinese interest rates are on the rise. After years of cheap credit, the Chinese central bank has finally made the connection between the amount of money in the economy and inflation. Yes, that is right. More money means more inflation.

So, for the third time in 11 months, the cost of borrowing has risen. The one-year benchmark lending rate will be raised to 6.39 percent from 6.12 percent, the highest in 8 years. The one-year deposit rate will be increased to 2.79 percent from 2.52 percent.

Despite earlier interest rate hikes, China's economy just keeps on growing. Last year, it expanded 10.7 percent. This extraordinary economic growth has fueled a remarkable property bubble.

The red kingdom has perhaps the strangest property bubble in history. In principle, a bubble should be impossible; the state owns all the land. Moreover, there is no effective legislation guaranteeing private property. Instead, there is a leasing bubble. The state issues leases, normally lasting for 70 years, and which gives the owner the exclusive rate to use the property. However, the leases are transferable and this creates the basis of the Chinese bubble.

The leasing system has been one of the cornerstones of the Chinese economic miracle. Since all land is state owned, the Chinese government can determine land usage without any annoying planning regulations. Therefore, when a new foreign investor needs a factory, the bulldozers move the locals out and up goes the shiny new building. A few little envelopes here and there and things can move real quick.

But what happens when the leases expire? Now that is a tricky question. No one really knows for sure. It is not as if there is a functioning legal system that can defend property rights.

Despite these legal difficulties, investors have bought up these leases with scant regard for the future. Prices have shot up, partly fueled by easy credit. Now, the central bank is trying to calm things down. However, it is going to take more than one marginal hike to calm the crazy Chinese non-property bubble.