China has raised the reserve ratio for banks for
a third time this year bringing it to nine per in a
bid to curtail an investment boom fuelled by rising
bank credit. Announcing this on its web site, the Beijing-based
People's Bank of China said the move would cut the amount
of money available with banks for lending.
the world's fastest- growing major economy, directed
banks to set aside nine per cent of deposits as reserves
starting November 15, up from 8.5 per cent, in a move
to cool an overheated economy.
central bank, which has raised interest rates twice
since April this year, wants to prevent cash generated
by a record trade surplus from channeled into investments.
has vowed to keep tabs on excessive lending by banks
to cool a spending spree after the World Bank warned
could lead to overcapacity and falling profits.
in China has been rising at around 40 per cent of GDP
almost triple the pace of overall growth since
2003. This rate of growth, which the government feels
unsustainable, has created huge increase in capacity'
that's aggravating problems of excess production, according
to China's ministry of commerce.
investment boom has been aided by China's ballooning
trade surplus. China, the world's third-largest exporter,
reported its second- largest trade surplus in September,
taking the total for the first nine months to $110 billion
and topping last year's total.
ministry of commerce forecasts the trade surplus to
reach $150 billion this year. China is also sitting
the world's largest foreign exchange reserve for any
country. China's foreign exchange reserves have doubled
in the past two years. At the end of September its reserves
stood at $988 billion, making it the world's largest,
as the central bank bought foreign currency to prevent
the yuan from rising.
the People's Bank of China has not been able to mop
up enough yuan to give more flexibility to the domestic
central bank raised benchmark lending and deposit rates
simultaneously for the first time in two years about
three months back.
It also lifted the lending rate in April. Banks' reserve
ratio requirement was increased in July and August,
by a half-point each time.