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China Calls for Higher Bank Reserves To Ward Off Stock, Real Estate Bubbles
February 12, 2010
Beijing. China ordered banks on Friday to increase reserves for a second time in a month to cool a credit boom without resorting to interest rate hikes that might derail a recovery.
Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices and are concerned that the surge is adding to inflation.
Beijing declared China had emerged from the global crisis after economic growth rebounded to 10.7 percent in the final quarter of 2009. But authorities say the global outlook is still uncertain, and analysts expect them to try to avoid rate hikes even as they start winding down their stimulus.
Banks were ordered to increase reserves by half a percentage point — to 16.5 percent for large lenders and to 14.5 percent for smaller institutions. Rural lenders were exempted to guarantee adequate credit for agriculture.
The move was in line with expectations that Chinese authorities were trying to control credit and keep the recovery on track, analysts said.
“The message coming out of China in recent weeks has been quite clear — policymakers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year’s aggressive expansion of credit,” Jing Ulrich, JP Morgan’s chairwoman for China equities, said in a report.
“We have already seen some scaling back of incentives that have spurred record sales in the domestic property sector and authorities have made clear that they will step up scrutiny of property lending to curb ‘overly rapid’ price gains in some cities.”
February 12, 2010
Beijing. China ordered banks on Friday to increase reserves for a second time in a month to cool a credit boom without resorting to interest rate hikes that might derail a recovery.
Chinese leaders worry that a stimulus-driven torrent of lending is fueling a dangerous bubble in stock and real estate prices and are concerned that the surge is adding to inflation.
Beijing declared China had emerged from the global crisis after economic growth rebounded to 10.7 percent in the final quarter of 2009. But authorities say the global outlook is still uncertain, and analysts expect them to try to avoid rate hikes even as they start winding down their stimulus.
Banks were ordered to increase reserves by half a percentage point — to 16.5 percent for large lenders and to 14.5 percent for smaller institutions. Rural lenders were exempted to guarantee adequate credit for agriculture.
The move was in line with expectations that Chinese authorities were trying to control credit and keep the recovery on track, analysts said.
“The message coming out of China in recent weeks has been quite clear — policymakers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year’s aggressive expansion of credit,” Jing Ulrich, JP Morgan’s chairwoman for China equities, said in a report.
“We have already seen some scaling back of incentives that have spurred record sales in the domestic property sector and authorities have made clear that they will step up scrutiny of property lending to curb ‘overly rapid’ price gains in some cities.”
