Fourth Time 's A Charm? China Raises Reserve Ratio …Again

For the fourth time in seven months, China increases the amount of money that banks must keep in reserves.

Beijing (AP) – China stepped up efforts Friday to cool its sizzling economy by tightening bank credit for the fourth time in seven months.

The central bank raised the amount of money that banks must hold in reserves, cutting the pool available for lending. The government worries that runaway investment in real estate and other assets, fueled by easy credit, could ignite inflation or a debt crisis.

The latest measure follows curbs imposed last week on investment in China’s booming auto manufacturing industry and earlier controls on real estate and other fields.

Banks’ reserve ratio will rise by 0.5 percentage points on Jan. 15, the central bank said. That increases the amount they must deposit with the government to 9 percent of their deposits.

The economy grew by 10.4 percent in the third quarter of 2006, down 11.3 percent the previous quarter. Economists say growth for the full year, due to be announced soon, should be about 10.5 percent.

The government raised interest rates twice last year and shrank the amount of money available for lending by raising the reserve ratio in June, July and November and forcing banks to buy billions of dollars in bonds.

Economic officials also have imposed curbs on land use and banned outright some types of real estate projects.

In auto manufacturing, where officials say capacity outstrips demand, controls announced Dec. 26 require producers to show they are selling at least 80 percent of vehicles they are authorized to make before they can expand their factories.

Chinese officials say the controls are starting to take effect, but they have warned that investment in industries such as auto manufacturing is still surging ahead.

The central bank did not say how much money would be removed from the economy by its latest measure. But it said last year that a similar 0.5 percentage point increase in the reserve ratio drained $18.8 billion from China’s markets.

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