In a surprise Xmass move, China announced it is raising its benchmark lending rate by 25 basis points (0.25%) to 5.81%.
The central bank also increased deposit rates by 0.25% to 2.75%.The rate hike, which is the second of the year (and the second in just over two months), will take effect on Sunday.
{Billy T notes: This is slightly more than half the current inflation rate of 5.1%, so savers lose purchasing power. That encourages them to spend more, helping China to switch to a domestic market economy, but the habit of saving ~50% of discretionary income dies hard.}
The move comes on the heels of Beijing saying earlier this month that it was shifting to a "prudent" monetary policy, from its previously stated "moderately loose" stance. The central bank said on Friday it will deploy a range of policy tools to head off inflationary pressures and asset bubbles. As such, analysts expect that the move could pave the way for more interest rate increases and lending controls.
From:
http://www.topstockportfolios.com/r.../1/0/fdaf7c61b349612683df2a19fded8c4ad54a8a3b
See also:
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aIm2G9rZzqhI&pos=1 Where in addition you find:
“Bank lending and a wider-than-forecast November trade surplus have pumped more cash into an economy already awash with money.
“This demonstrates how determined* the government is to control inflation,” said Wang Qing, a Hong Kong-based economist with Morgan Stanley. “Interest rates on medium and long-term loans are adjusted by banks at the beginning of every year so by raising rates now, this will have a much greater tightening effect than it would have in January.” …”
Billy T notes: Neither article mentioned that China in a five week interval raised the bank reserve requirements three times (twice in Nov. and once in early December.) China escaped the global economic crash that began in 4Q08 in part by a "loose money" policy and by a well designed, and quickly applied, stimulus package that relative to its GDP was larger than the US's. ("well designed" as the money both made lots of jobs, especially in rural areas, and improved it long term productivity, again especially in the interior. Things like the high speed railroads, hospitals and clinics, salary increases, in addition to the easier loans, which are now being killed.
A few notes on China's high speed rail:
(1) Has change the completion date for the 1,318 km link between Pequim Xangai to June 2011, and advanced form earlier planned date in 2012.
Done by putting 115,000 to work on the line. Began construction in April 2008. The AVERAGE velocity will be 350 km/hour.
(2) Now functioning are 7,531 km, more than the rest of the world's total !! (and a year ago that was not expected until late 2011.)
(3) By 2020 will have 16,000Km and ALL cities with more than half a million population will be served ! Budget for that is 33.9 billion US dollars.
(4) On 6 Dec 10 broke its own, two months earlier set,world speed record with new speed of 486.1 km/hour.
(5) Currently the longest functioning line (1.086 km) links Wuhan-Guangzhou.
(6) Chinese company CSR is expanding production to be able to build the 900 high speed trains in it current order back log. (Rest of the world dos not have 900 high speed trains. - When these are delivered, China will have more than twice the rest of the world's high speed trains and more than twice the rest of the world's high speed rail network.
Major problem has been that some local people being displaced want greater financial compensation and have gone to court to get it, slowing work on sections of the line. Some of the other local people, thus with salaries suspended, have become violent. For example, 39 year old land owner Li,Chang Jiang was beaten so badly that he spent 40 days in the hospital and received R$8,150 in "compensation". Another man, not named in full page article of 25Dec10 Folha do Sao Paulo was incapacitated and received R$32,000 (about 19,000 dollars) Most locals, opposed to the construction only talk, don't try to obstruct the construction - they basically say "You can't fight the government. It is for the good of the nation."
--------------------
Post 1070 from computerworld, list 5 reasons why China is "leap-frogging" the rest of the world in technology but failed to note one very important reason why: China has money to buy Western Technology and part of the purchase contract is full disclosure of the manufacturing technology, etc. - not just product delivery. China also has many more enginering graduates than any other country to rapidly extend and improve this acquired technology.
For example four years ago China could not build a high speed train, but now they build the world's fastests and are dominating the export market with it. California may be the first in the US to have one (assuming C A is not soon in bankruptcy). Siemens and Alstrom are bidding against China + GE for the job. CA will need to chose between politics and the world's best train. IMHO, China added GE to make choosing China at least politically possible.
