Nice summary in Bloomberg, from which I excerpt the following. It is interesting to see that bank economists are sounding increasingly alarmed. This may simply be because chaos in the markets always tends to encourage apocalyptic views among bankers, but it may also be a belated recognition that all is not well, and conditions can change brutally quickly.
China May Raise Rates by Sept. 30 to Cool Growth
By Nipa Piboontanasawat and Patricia Chua
Aug. 17 (Bloomberg) -- China will probably raise interest rates by the end of September to cool the economy after inflation accelerated to a 10-year high and record trade surpluses pumped cash into the financial system. Rates will increase this quarter for the fourth time since March, 11 of 16 economists in a Bloomberg News survey said yesterday after the final economic data for July. Most expect the benchmark one-year lending rate to rise to 7.11 percent from 6.84 percent. The deposit rate is likely to be raised to 3.6 percent from 3.33 percent...
...The trade surplus may reach $250 billion this year from $177.5 billion in 2006, according to economists surveyed separately this month. A fourth rate increase will compare with two last year. "China is coping with a bigger inflow of liquidity," said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.
Consumer prices jumped 5.6 percent in July from a year earlier, the biggest increase since February 1997, as the costs of pork, eggs and poultry soared. M2, the broadest measure of money supply, rose 18.5 percent. "With inflation higher, monetary policy has not been significantly tightened and real interest rates have not changed dramatically," said Isaac Meng, senior economist at BNP Paribas SA in Beijing...
...The key CSI 300 Index of shares has climbed more than 130 percent after more than doubling in 2006. The value of China's listed shares is $2.8 trillion and larger than last year's gross domestic product. In July, housing prices jumped 19.4 percent from a year earlier in Shenzhen and 10.4 percent in Beijing.
Household savings fell in July by 9.1 billion yuan ($1.2 billion) from the previous month. China this week reduced a tax on interest income to 5 percent from 20 percent to make deposits more attractive. The People's Bank of China will order lenders to set aside more money as reserves at least once more this year, 11 economists said. Most expect the required reserve ratio to rise to 12.5 percent from 12 percent.
The central bank has already told commercial banks to increase reserves on six occasions this year, compared with three times last year. Chinese lenders extended 2.8 trillion yuan of new loans in the first seven months, 18 percent more than a year earlier. Fixed-asset investment in urban areas increased 26.6 percent in the first seven months from a year earlier, close to the 26.7 expansion in the first half. Industrial production rose 18 percent in July, down from 19.4 percent in June...
...The nation's foreign-exchange reserves, the world's largest, soared to a record $1.3 trillion at the end of June, 42 percent more than a year earlier. The trade surplus surged 81 percent in the first seven months to $136.8 billion.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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December, 2007
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