BIZCHINA / From Top Officials
China faces liquidity, inflation pressure
By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-03-14 14:24
Central bank governor Zhou Xiaochuan talks to reporters on the sidelines
of the annual session of the National People's Congress in Beijing March
12, 2007. [Xinhua]
China is facing greater pressure of liquidity and inflation as the trade
surplus, household deposits and consumer price index surged in February
in the world's fastest growing major economy.
The country's trade gap reached US$23.76 billion in February, up from the
US$2.5 billion from the same period last year, the General Administration
of Customs said Monday. The country's record monthly surplus was $23.8
billion in October.
The surge came after the trade surplus soared 74 percent to hit a record
177.5 billion dollars last year. Some economists are pencilling in 230
billion dollars for 2007.
The huge imbalance of international payment left the nation's economy
awash with cash. At the end of last year, the country's foreign exchange
reserve topped US$1.07 trillion, the largest in the world.
China is in preparations for creating a forex investment company modeled
on Singapore's Temasek to make more profitable use of the forex holdings,
said Finance Minister Jin Renqing last week.
The new cabinet-level entity is expected to get anywhere from US$200
billion to 400 billion to invest in higher-return opportunities around
the world.
Speeding up the investment of foreign reserves could help ease the rising
pressure on the yuan to rise in value.
China is also considering allowing individuals to convert their renminbi
holdings into foreign currency for overseas investments, revealed Hu
Xiaolian, chief of the State Administration of Foreign Exchange.
Currently, individuals are allowed only to buy overseas investment
products of Qualified Domestic Institutional Investors.
Household deposits surge
The trade figure came after the central bank said Monday that newly added
household deposits hit an all-time high in February.
Household deposits grew 99.12 billion yuan, an increase of 58.38 billion
yuan over the same period last year. The sharp increase was attributed to
the timing of the lunar new year which fell in the middle of February
this year and in mid-January last year.
The residents usually get a big share of their salary during the Spring
Festival, said the central bank, adding that the close of the stock
markets during the holiday also helped to push up the deposits.
Upon the release of the deposits figure, the central bank announced the
issuance of 140 billion yuan of bills with a maturity of one year, in an
apparent bid to absorb the increased liquidity.
That added to the 390 billion yuan the central bank issued in bills with
maturities of three months, one year and three years since the end of
last month.
The rocketing cash holdings increased the commercial banks' impulse to
offer loans. The yuan-denominated loans grew 41.38 billion yuan, a
year-on-year increase of 26.47 billion, official statistics showed.
The credit expansion may force the central bank to raise the reserve
requirements ratio for the sixth time in nine months, several investment
banks said. Lenders now must set aside 10 percent of their deposits at
the central bank.
China would continue to use a mix of open-market operations, statutory
reserve requirements and interest rates to soak up excess liquidity in
the financial markets, said central bank governor Zhou Xiaochuan on
Monday.
Excess liquidity is partly blamed for the high-flying prices in the
country's stock market, which grew more than 130 per cent last year in a
bull run.
Shares in the Shanghai Stock Exchange and Shenzhen Stock Exchange are
trading at 33 times earnings on average, much higher than the average of
15 in developed markets.
The regulators are encouraging red chips companies listed in Hong Kong to
list in the mainland bourses to offer more quality shares to investors.
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