China takes steps to cool off economy

Scott Tong Jan 18, 2010

China takes steps to cool off economy

Scott Tong Jan 18, 2010


Tess Vigeland: Today China takes a step toward reining in its banks. Unlike their counterparts in the U.S., Chinese banks have been lending like crazy over the last year. Beijing told them to in an effort to stimulate the economy and fight off the global recession. Now, China will be the first to fight inflation and overheating. From Shanghai, Marketplace’s Scott Tong reports.

SCOTT TONG: Today’s move forces Chinese banks to hold onto more of their deposits than before. So, less money to lend now. It’s the first hike in what are called reserve requirements in a year-and-a-half.

But it’s one of many policy moves to tame an economy that, well, as one strategist put it, shotgunned a can of Red Bull last year and got wired on easy money.

LOUIS Kuijs: There is a limit to how much the real economy needs in terms of new lending and credit.

Economist Louis Kuijs is with the World Bank’s Beijing office. He says Chinese leaders are concerned…

Kuijs: That this liquidity is finding its way eventually in asset markets, in unwarranted ways.

I.e. bank loans somehow are funding a Chinese housing bubble. By one estimate, Beijing apartment prices elevated 66 percent last year; Shanghai 68 percent.

UBS Securities economist Tao Wang.

TAO Wang: The expectation that property prices always rise and never fall is a little dangerous, and if that’s fueled by liquidity and credit, that could be risky.

How Beijing manages its exit strategy matters for everyone. The head of the IMF said today that the global recovery is going “faster and stronger” than anticipated. Led by Asia.

William Hess is with Standard and Poor’s in Hong Kong.

WILLIAM Hess: China will really punch above its weight. They’re going to be a driver of growth, as things really continue to settle in the U.S. and in Europe.

The IMF expects the world economy, which shrank last year, to grow this year by at least 3 percent.

In Shanghai, I’m Scott Tong for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.