Richard Nixon was full of surprises, not least when he shook hands with Mao Zedong in Beijing in 1972. The previous year, Nixon imposed price controls at home to stamp out inflation, another surprising move from a Republican president. The president's visit transformed Sino-American relations, but it is those price controls Beijing should be recalling right now.

China's government hopes to force prices down by fiat. Even after the central bank increased its one-year lending rate to 5.81% over the holidays, inflation of 5.1% in November suggests real rates remain low or negative, given lags in data. Raising rates sharply, or letting the yuan appreciate quickly, would be the more straightforward way of curbing prices.

Unfortunately, higher rates would hurt economic growth, and thereby employment. Meanwhile, China's exporters, already dealing with slower demand from Western consumers, don't need a stronger currency.

Hence, Beijing is using price controls and other microeconomic tools to head off inflation. Imminent measures to strengthen rules against price collusion can be read as helping in this regard.

In a command economy, targeting both interest rates and the exchange rate, and controlling prices by decree, is possible. But it depends on precision planning. And keeping real rates low encourages bad investment: Just look at America's late love affair with housing.

Compounding China's challenge is its desire to rebalance its economy toward consumer demand, shown in the latest five-year plan. In the medium term, this is desirable for China and the wider world. Consumer-focused sectors like Chinese retail, travel and leisure should also benefit.

But the casualty in the transition will likely be corporate profits, says Russell Napier, a consultant with brokerage CLSA. He points to the mismatch between double-digit percent increases in the minimum wage across China and the government's resorting to price controls with inflation around 5%. The minimum wage in Beijing, for example, was increased by 21% last month, having already gone up 20% in June.

Barring surging productivity growth, rising wages erode profit margins. That is especially if Beijing's controls don't contain raw-materials prices, subject to external factors like U.S. quantitative easing and weather-related disasters. Between 1999 and 2009, labor's share of the economy declined from 52.4% to 46.6%, while profits jumped from 19% to 24.7%, according to CLSA. The same trend has happened in the U.S., helping explain the resilience of S&P 500 earnings.

With Beijing now seemingly focused on raising wages, investors focused only on the country's headline economic growth should beware.

The broader risk is that Beijing's fine-tuning goes awry. It is worth remembering Nixon's decrees proved unsuccessful. Eventually, U.S. inflation was tamed by sharp increases in interest rates under Federal Reserve chief Paul Volcker. Investors in China and commodity markets tied to the country's growth must pray history doesn't rhyme.