China raises bank reserve ratio to 9 per cent to ease credit flow

Mumbai: China has raised the reserve ratio for banks for a third time this year bringing it to nine per in a bid to curtail an investment boom fuelled by rising bank credit. Announcing this on its web site, the Beijing-based People's Bank of China said the move would cut the amount of money available with banks for lending.

China, the world's fastest- growing major economy, directed banks to set aside nine per cent of deposits as reserves starting November 15, up from 8.5 per cent, in a move to cool an overheated economy.

China's central bank, which has raised interest rates twice since April this year, wants to prevent cash generated by a record trade surplus from channeled into investments.

China has vowed to keep tabs on excessive lending by banks to cool a spending spree after the World Bank warned could lead to overcapacity and falling profits.

Investments in China has been rising at around 40 per cent of GDP – almost triple the pace of overall growth since 2003. This rate of growth, which the government feels unsustainable, has created huge increase in capacity' that's aggravating problems of excess production, according to China's ministry of commerce.

The investment boom has been aided by China's ballooning trade surplus. China, the world's third-largest exporter, reported its second- largest trade surplus in September, taking the total for the first nine months to $110 billion and topping last year's total.