China has again raised its banks’ reserve asset ratios to try and rein in bank lending, liquidity and inflation.
The move, which came Friday, was a surprise as many commentators in Beijing and Hong Kong had thought would be put on hold after the terrible events in Japan last week.
The news was swamped by the events in Japan and Libya.
The hike, the third this year and the ninth since the beginning of last year, won’t be the last according to those commentators.
They point to still solid bank lending last month and high levels of liquidity in the system.
It shows that the government (through the central bank, the People’s Bank of China) still sees inflation, not an economic slowdown resulting from Japan’s disaster, as the bigger risk to the economy.
China’s announcement came just hours after the Group of Seven rich nations said they would jointly intervene to calm markets unnerved by Japan’s nuclear crisis and to rein in the rising yen.
The higher rate starts March 25.
The 50-basis-point increase in required reserves was the third this year and lifts the mandatory ratio for the country’s biggest banks to a record 20%.
That’s for large banks; smaller banks and other lenders will have to keep 18% of their assets in the reserve.
The increase in reserves will lock up about 350 billion yuan ($US53 billion) of cash that banks would otherwise have been able to lend.
The news came after the February property price review was released by the country’s statistics bureau.
It suggested that a growing number of Chinese cities experienced a decline in property prices or a slowdown in growth during February.
The National Bureau of Statistics said property prices in eight cities among the 70 surveyed registered a month-on-month decline, compared with three cities in January.
And 44 cities saw the growth rate narrowing on a monthly basis when compared with the January figure, according to the NBS.
New-home prices increased by 6.8% in Beijing in February – unchanged from January – from a year earlier.
In Shanghai, prices rose 2.3% year-on-year, up from 1.5% in January.
Chinese consumer price inflation was unchanged from January at 4.9% in February and it is likely to pick up in the coming months because of a lower base of comparison in 2010.
But producer prices were up 7.2% in the year to February, the fastest rate of growth for 28 months.
European stocks and copper prices dipped after the reserve ratio increase, but the intervention against the yen was the big story and took attention away from China’s move.
To meet the official goal of keeping inflation to a 4% average this year (up from a 3% target in 2010 and an actual rate of 3.2%), the government has raised interest rates three times in addition to the increases in banks’ reserve requirements.
Price controls and subsidies have been used to try and cap price rises or boost production of foodstuffs.
China is also battling the impact of a major dry spell in its main wheat growing areas in the north and northwest.
There are signs that the tightening is starting to have an impact with the central bank reporting early last week that bank lending fell in February.
But commentators pointed out that the media reports of lending levels are not being reported as they were in 2010 and previous years (nor are property prices).
Lending levels have been broken down and it’s hard to get a national figure (just as there is now no national figure for property price rises in the 70 major cities surveyed each month).
Analysts said that on the media reports, bank lending last month was still above the levels of early 2008, before the financial crunch hit.
