BEIJING - The
Chinese government on Wednesday imposed price
controls on foodstuff and raised the required
reserve ratio for commercial banks, in efforts to
curb inflation from an 11-year high. The same day,
the People's Bank of China (PBoC), the central
bank, said it will raise the required reserve
ratio for commercial banks by half a percentage
point as of January 25.
As China's
consumers prepare for the annual Lunar New Year
shopping spree, the government moved to restrict
price hikes on key household commodities,
including grain, edible oils, meat, milk, eggs and
liquefied petroleum gas.
The National
Development and Reform Commission (NDRC), China's
top planning agency, has announced price controls
on a
package of products,
including grain, edible oil, meat, milk, eggs and
liquefied petroleum gas, after soybean oil climbed
58% and lamb rose 51% this month from a year ago.
"Major enterprises are required to submit
pricing plans to the government for official
approval 10 working days before they intend to
raise the prices," said the NDRC in a circular on
interim price intervention.
Surges in
prices of staples such as grain, pork and cooking
oil since last May lifted the consumer price index
to 4.6% in the first 11 months of 2007, and an
11-year high of 6.9% in November, well above the
government's 3% target. Edible oil, pork and beef
prices in early January in 36 cities surged 58%,
43% and 46% year-on-year.
The government
should notify the enterprises within seven work
days after it gets their applications for price
hikes whether it approves or rejects the schemes
on the basis of whether the price-rise is
reasonable, noted the circular.
The price
and market regulation agencies have the right to
ask enterprises to return prices to normal or
reduce the price-rise range if they regard the
increases as unacceptably large.
The PBoC
ordered commercial banks to raise their deposit
reserve ratio by 0.5 of a percentage point,
effective from January 25, removing about 190
billion yuan (US$26.3 billion) from the financial
system. It's the 11th increase since January last
year.
The ratio will be raised to 15%, the
highest since 1984. This increase, the first this
year, comes a month after the ratio was raised by
a percentage point on December 25. The PBoC said
the adjustment was to draw back excess liquidity
at banks and curb credit growth.
Excessive
liquidity is a major challenge for the government
as it could result in bubbles and economic
overheating. China's benchmark Shanghai Composite
Index almost doubled last year and the economy
expanded 11.5% in the first three quarters.
The problem of excessive liquidity is
becoming more prominent as the record trade
surplus pumps more cash into the country.
China's foreign exchange reserve reached
US$1.53 trillion at the end of 2007, up 43.3% from
2006, with $461.9 billion added to the country's
foreign exchange reserve in 2007, said the PBoC
last week.
"The hike of the reserve
requirement by only half a percentage point will
have limited impact on the loans extension at the
big four state-owned commercial banks, but have
far bigger impact on that of the mid-sized and
small banks," said Yin Jianfeng, an expert with
the Finance Research Institute of the Chinese
Academy of Social Sciences.
China's
yuan-denominated loans increased 3.63 trillion
yuan in 2007, 14% higher than in 2006. The PBoC
has set the target for newly added yuan loans to
be unchanged at 3.63 trillion yuan for the whole
of 2008, China Securities Journal, a Xinhua-run
newspaper, quoted an unnamed source as saying on
Monday.
At the 2007 Central Economic Work
Conference concluded on December 5, the government
pledged to shift its monetary policy to "tight"
from "prudent" to prevent economic overheating and
evident inflation.
Apart from frequent
open-market operations, the central bank last year
raised the reserve ratio 10 times and benchmark
interest rates six times to curb inflation and
economic growth.
Insiders said the PBoC
will continue to raise the reserve requirement and
conduct open-market operations and window guidance
to tighten liquidity and credit expansion.
The government should take a prudent
approach toward macro-economic controls, given the
uncertainty in the country's economic growth this
year with the US economy showing signs of
recession, Yin added.
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