Still a runaway train
China’s bank reserve ratio has gone up for the 10th time this year, while money supply continues to expand at an 18% rate. This is one country with a problem in throttling down its economy. WSJ
China’s central bank said it would raise the share of deposits that banks must keep on reserve for the 10th time this year…The central bank said it was raising the reserve requirement ratio by a full percentage point, effective Dec. 25, which will bring the ratio to 14.5% for most commercial banks, the highest since the mid-1980s…Along with its string of ratio increases, the central bank has raised benchmark interest rates five times this year, after just two increases in 2006…
the country’s broadest measure of money supply, M2, should have expanded 18.2% at the end of November from a year earlier, slower than the 18.47% gain posted at the end of October. The consumer price index last month likely rose 6.6% from a year ago, picking up from the 6.5% recorded in both October and August, which was an 11-year high.
The central bank introduced the concept of a reserve requirement ratio in 1984 and set it for corporate deposits at 20%, rural area deposits at 25% and general savings deposits at 40%. In the following year, it revised the ratio to 10% across the board and has since used just this single measure.
China’s exports are up another 27% so far this year, to $878 billion for the year to date, and an annualized total of $1.171 trillion for all of 2007. Its foreign exchange reserves are $1.5 trillion and have not even scratched the surface of being recycled into equities. These trends are clearly unsustainable. But how will it all end?