As the “hard, bumpy or soft landing” debate continues, China raised its interest rates (last Friday) – for the second time in four months, in an effort to slow gown economic growth. The Houston Chronicle reports:
“The central bank raised the minimum rate for one-year bank loans 0.27 percentage point to 6.12 percent, effective Saturday. It also pushed up deposit rates, apparently trying to discourage investment by making savings more attractive.
The move, following an increase in April, suggested Chinese leaders believe measures already in place are failing to cool an economy that grew by a stunning 11.3 percent in the second quarter, driven by heavy spending on factories and other assets.”
The hope is that the rise will help stop excessive loans and fixed-asset investment (long-term, 5-year loan rates were raised to 6.84 percent).
Meanwhile, Bloomberg reports that measure are starting to have an impact, and that investment in real estate and other fixed assets slowed in July and that industrial output climbed at the slowest pace since April. Money supply growth was reported to be steady at 18.4 percent.
“Fixed-asset investment in towns and cities climbed 30.5 percent to 4.48 trillion yuan ($564 billion) through July from a year earlier, the Beijing-based National Bureau of Statistics said today. The increase compares with a 31.3 percent gain in the first half and 27.2 percent a year earlier.”
Forbes refers to comments from an official with the National Development and Reform Commission’s (NDRC) Academy of Macroeconomic Research, and suggests that an additional interest rate rise may be seen in the fourth quarter.
Despite these small victories, the World Bank has revised its estimate for China’s 2006 growth up to 10.4 percent from 9.5 percent. The Chinese Ministry of Commerce’s estimate is for around 10.2 percent growth overall (up from an earlier estimate of 9.9 percent, and against a target of 8 percent), with fixed asset investment increasing by as much as 25 percent, according to media reports.
All this is also having an impact on the Renminbi (RMB) which, the FT reports has recently risen sharply against the US dollar amid signs that Beijing will increasingly relax foreign exchange controls and try to cut the trade surplus.
Expect more policy initiatives with both political (e.g. US pressure for an upward RMB valuation) and economic (e.g. domestic stability) aims to follow.
See news sources:
China raises interest rates again
Houston Chronicle – United States
BEIJING — China raised interest rates Friday for the second time in four months, stepping up efforts to cool off an economic boom that the government worries …
China could hike interest rates again in Q4 – report
Forbes – USA
BEIJING (XFN-ASIA) – China may increase interest rates in the fourth quarter, a official with the National Development and Reform Commission’s Academy of …
China Fixed-Asset Investment Slows as Curbs Effective (Update1)
Bloomberg – USA
Aug. 16 (Bloomberg) — Investment in China’s real estate, factories and utilities slowed in July, suggesting government curbs on expansion are taking effect. …
Renminbi gains sharply against dollar
By Richard McGregor in Beijing
Published: August 16 2006 19:35 | Last updated: August 17 2006 03:43
China economy seen expanding at about 10 pct this yr – commerce …
Forbes – USA
BEIJING (XFN-ASIA) – China’s economy is seen expanding by about 10 pct this year, with fixed-asset investment growing by more than double that rate at 25 pct …
China raises 2005 economic growth figure to 10.2%
Globe and Mail – Canada
BEIJING — China’s booming economy grew even faster last year than originally thought, the government said Wednesday, as authorities announced another new …