Friday, January 05, 2007

China Raises Bank Reserve Requirement to Cool Lending

mhhhhh, too slow but they are moving in the right direction. 4th time in seven month with additional rate hikes etc. looks like the chinese get the picture that something is getting out of control. here is one example that shows the "over-investment" in the property sector.
mhhhh, immer noch zu langsam aber die richtung stimmt. das vierte mal in 7 monaten und dazu noch zinserhöhungen etc. sieht so aus als wenn es einigen unheimlich wird und die dinge drohen ausser kontrolle zu geraten. im link oben ein beispiel wie das im immobiliensekto aussieht.

Jan. 5 (Bloomberg) -- China told banks to set aside more money as reserves for the fourth time in seven months to prevent a rebound in lending and investment in the world's fastest- growing major economy. (hasn´t hurt stocks so far..../ die aktien hat es bisher nicht gestört....)

Banks must put aside 9.5 percent of deposits starting Jan. 15, up from 9 percent, the Beijing-based People's Bank of China said today on its Web site. The increase will cut the amount of money they have available to lend.

Central bank Governor Zhou Xiaochuan ordered today's move even after government curbs slowed economic growth to what he on Nov. 20 called a ``reasonable'' rate. China, which raised interest rates twice last year, wants to prevent cash generated by a record trade surplus from being channeled through bank lending into investment projects.

``This is not the end,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``We expect investment growth to rebound and the central bank will continue efforts to tighten liquidity.'' He expects the central bank to raise interest rates mid-year.

The size of the increase was the same as for the previous three, announced in June, July and November. The requirements were previously unchanged for more than two years.

..... The bank is concerned that wasteful factory expansion could leave China with idle production capacity and rising bad loans.

Trade Surplus
``Various measures taken by the central bank since 2006 have achieved some results in slowing down lending growth in the past few months,'' the People's Bank said today. ``However, there is a new increase of excessive liquidity in the banking system as a result of the continuing trade surplus and there is rising pressure for loans to increase.'' .....

Zhou is turning his focus to keeping export-driven money inflows from filling bank deposits. China's trade surplus may swell 65 percent to a record $168 billion this year, ``The trade surplus is pumping liquidity into China,'' said ...... ``The central bank needs to tighten, but raising interest rates will only increase pressure on the currency to appreciate, so this is a more suitable and effective way.'' (you really wonder why the fed hasn´t done the same..... there is a lot of room from close to zero reserves.....die fed hat die reserven auf nahe 0% zurückgefahren. man muß sich schon fragen warum sie in zeiten explosiven kreditwachstums auch in den usa in den letzten jahren nicht gegengesetuert hat... die antwort dürfte klar sein...)

....In its quarterly monetary policy report published in November, the central bank said rising savings deposits at China's banks could cause lending and investment to rebound. National savings amounted to 48 percent of gross domestic product last year and are ``still on a rising trend,''

Yuan Deposits
Yuan deposits at China's banks stood at 33.4 trillion yuan at the end of November, up 17.2 percent from a year earlier. The central bank estimates that every 0.5 percentage point increase in the reserve requirement reduces the amount available for lending by 150 billion yuan.

Forcing lenders to set aside more money also limits bad loans, which have vexed the nation's banking system in the past and accounted for 7.3 percent of lending at the end of September, ...

Zhou on Dec. 26 said the exchange rate will play a bigger role in making the economy less dependent on investment,........ (should be bad news for the $, when you look at the long term chart there is lots of room......sollten schlechte news für den $ sein, ein längerfristiger chart zeigt wieviel raum vorhanden ist......)

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Anonymous Aaron Krowne said...

Excellent observation... this is very very important. I think there is basically a battle breweing between eastern and western central banks; the westerners won't (or perhaps can't) do what they need to do and strike at the root of liquidity with reserve requirements, and the eastererns are going ahead and doing it. The West seems to be hoping no one will ask why that is done here.

The battle has front lines in Thailand, where the rulers have been battling the excess influx of foreign capital, not with the preferred method of the West (interest rate interventions), but with the heavy hand of capital controls. Perhaps harsh, but maybe this is the kind of tough medicine needed.

7:44 PM  
Blogger jmf said...

hello aaron,

i really was shocked when i read your piece a time ago at itulip about this topic.

really one of the "top ten" posts i´ve seen and an eyeopener

12:33 AM  

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