Potentially huge news? China Central Bank Raises Benchmark Interest Rate (Update3) April 27 (Bloomberg) -- China's central bank unexpectedly raised its benchmark interest rate for the first time since October 2004 to cool the world's fastest-growing major economy. The one-year lending rate will be increased to 5.85 percent from 5.58 percent, effective tomorrow, the People's Bank of China said in a statement on its Web site today. The central bank left the one-year deposit rate unchanged at 2.25 percent. Commodity stocks fell on concern higher borrowing costs will slow demand in the world's biggest consumer of copper and steel and the second-biggest user of oil. Lending jumped 70 percent in the first quarter from a year earlier, extending an investment binge that has pushed commodity prices to records and left China with an oversupply of property and manufactured goods. ``The objective is to slow down investment growth and loan growth which were higher than the targets set by the government,'' said Ma Jun, an economist at Deutsche Bank AG in Hong Kong. ``This won't be the only move and more administrative measures are likely to come.'' Mining companies BHP Billiton and Anglo American Plc slid as the rate increase raised concerns metals demand will slow. BHP Billiton, the world's biggest mining company, dropped 5.1 percent to 1,112.5 pence, while Anglo, the second-largest, slid 5.3 percent to 2,290 pence. Yen Strengthens The yen rose to 114.51 against the dollar at 11:37 a.m. in London from 114.73 late yesterday in New York on speculation that higher rates will put pressure on the Chinese yuan to strengthen. The Group of Seven nations on April 21 called on Asian countries, especially China, to allow their currencies to appreciate. ``This adds to the impression that Asian central banks are going to be prepared to raise interest rates, and ultimately allow more strength in their currencies,'' said Ian Stannard, a currency strategist at BNP Paribas SA in London. China leapfrogged France and the U.K. to become the world's fourth-largest economy last year and accounts for a bigger share of business at global companies such as Caterpillar Inc., Volkswagen and Nokia Oyj. China's government bonds have slumped in the past six weeks on speculation the central bank would raise the amount of cash banks need to keep as reserves, while holding interest rates unchanged. The yield on the 4.44 percent local currency bond due in February 2015 jumped 25 basis points since March 16. The yield fell 1 basis point to 3.07 percent today. Unexpected Action The central bank wasn't expected to raise its benchmark rates because inflation is subdued, said Stephen Green, a Shanghai-based economist at Standard Chartered Bank. Consumer prices climbed 0.8 percent last month from a year earlier. The central bank expects inflation of 2 percent for the full year. Homi Kharas, chief economist for East Asia and the Pacific at the World Bank, on April 20 said accelerating lending and investment increase the risk of a sudden slowdown in China, where economic growth averaged 10 percent over the past three years. Regulators have warned banks, saddled with a total of 1.31 trillion yuan (163 billion) of bad loans, to beware of defaults in industries including real estate and steel. ``The move is to further consolidate the effects of macro economic measures and maintain sustainable, rapid and healthy development of the economy,'' the central bank said in the statement. Commodities prices fell in the second quarter of 2004, the last time China moved to curtail investment. The government limited lending to projects such as steel mills and auto plants two years ago, only to see investment rebound in 2005. Excessive Growth China's economy grew 10.2 percent in the first quarter from a year earlier as investment in factories and roads in urban areas surged 29.8 percent. The trade surplus widened to $11.2 billion in March, the second-highest on record and pushing the country's foreign-currency reserves, the world's largest, to $875.1 billion. China last raised interest rates on Oct. 29, 2004, when the benchmark one-year lending and deposit rates were increased by 0.27 percentage points to 5.58 percent and 2.25 percent respectively. Premier Wen Jiabao and central bank vice governor Wu Xiaoling have both warned this year that overall money supply is growing ``excessively.'' M2 money supply, which includes cash and all deposits, in March grew 18.8 percent from a year earlier to 31.1 trillion yuan, matching February's growth. The central bank has said it aims to restrict M2 growth to 16 percent this year. The central bank expects inflation of 2 percent for the full year. Raising benchmark interest rate may harm the government's plans to boost domestic consumption, said Xia Bin, head of the Institute of Finance at China's State Council Development and Research Center, on April 22. China's government is seeking to bolster consumer spending to help make the economy less dependent on exports and investment for growth. Rising spending would also help bolster imports, potentially reducing the trade surplus that's caused friction with the U.S., China's biggest export market. To contact the reporter on this story: Philip Lagerkranser in Hong Kong or at lagerkranser@bloomberg.net Last Updated: April 27, 2006 06:52 EDT
Microsoft Sinks $3.7B in China http://www.redherring.com/Article.aspx?a=16653&hed=Microsoft+Sinks+$3.7B+in+China Software giant spends its way into Beijingâs good graces. April 27, 2006 Microsoft plans to spend in excess of $3.7 billion in China over the next five years, company officials said Wednesday in Beijing. The announcement came on the heels of Chinese President Hu Jintaoâs visit to Microsoftâs Redmond headquarters and the home of Microsoft Chairman Bill Gates.
A country growing 10% pa. for years has its official interest at half of that and long-term bond yields at 3%. Is it any wonder that loan & money growth is "excessive"? Or rather, totally out of control. How big a bubble do the commies want to build before they let it burst? And when might it burst, after the Olympics?