China's central bank tightened monetary policy on Friday night for the second time in six weeks, a sign that inflation fears are affecting developing countries as well as industrialized countries.
Faced with soaring growth in bank lending, the People's Bank of China announced that it would require most banks to hold 8 percent of their loan assets as reserves at the central bank, up from 7.5 percent. This means that banks will have a bit less money available to lend for new houses, office buildings, factories and other projects, which could have the effect of slowing economic growth slightly.
"Although the consumer price index is still relatively low, if credit growth continues at a fast pace it is possible the economy will heat up and there would be a risk of inflation," the bank said in a statement.
Experts on Chinese monetary policy said that the higher reserve requirement by itself would have little effect on Chinese banks. They pointed out that the new rules would require Chinese commercial banks to keep only an extra US$19 billion worth of Chinese currency with the central bank.
By comparison, the banks are receiving almost all of the US$18 billion to US$20 billion in foreign currency flowing into China each month and are converting that foreign currency into Chinese currency.
The new reserve requirement "is very modest," said Nicholas Lardy, a Chinese financial policy expert at the Institute for International Economics in Washington. "This will be erased in one month."
China's central bank has been buying foreign currency from commercial banks as fast as foreign investment and China's trade surplus bring money into the country. The central bank has been paying for the foreign currency essentially by printing more of China's currency, the yuan.
The tightening by the central bank also has the effect of tempering a rise in the yuan's value against the US dollar, a change that would make Chinese goods less competitive in overseas markets.
Awash with yuan as a result of these transactions, China's banks have gone on a lending spree. Having been told by regulators at the start of the year that they would be allowed to increase their total portfolio of outstanding loans by US$310 billion, they proceeded to step up lending by US$220 billion in just the first five months of this year.
That was an increase of 80 percent over the same period last year.
"It's a complete credit blowout," Lardy said.
Liang Hong (
MANAGING RISKS: Taiwan has secured LNG sufficient to cover 95 percent of electricity demand for next month, UBS said, describing the government’s approach as proactive UBS Group AG has raised its forecast for Taiwan’s economic growth this year to 8 percent, up from 6.9 percent previously, and said expansion could reach as high as 8.6 percent if external energy shocks are avoided. The upgrade reflects a stronger-than-expected first-quarter performance and sustained momentum in artificial intelligence (AI)-driven exports, which UBS said are providing a firm foundation for growth despite geopolitical and energy risks. Taiwan’s GDP expanded 13.69 percent year-on-year in the first quarter, the fastest growth since the second quarter of 1987, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on Thursday. On a seasonally
Ryanair, Transavia, Volotea and other low-cost airlines are feeling the financial pain from high jet fuel prices as a result of the Middle East war and are cutting flights. The closure of the Strait of Hormuz has taken a huge chunk of oil supplies off the market, sending the price of jet fuel soaring and triggering fears of shortages that could force airlines to cancel flights. Airlines are not waiting for a lack of supplies to react. “Travel alert: Airlines are cutting thousands of flights right now,” Travel Therapy host Karen Schaler said in an Instagram reel this past weekend.
Shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) have repeatedly hit new highs, but an equity analyst said the stock’s valuation remains within a reasonable range and any pullback would likely be technical. The contract chipmaker’s historical price-to-earnings (P/E) ratio has ranged between 20 and 30, Cathay Futures Consultant Co (國泰證期) analyst Tsai Ming-han (蔡明翰) told Central News Agency. With market consensus projecting that TSMC would post earnings per share of about NT$100 (US$3.17) this year, supported by strong global demand for artificial intelligence (AI) applications, and the stock currently trading at a P/E ratio of below 25, Tsai said the valuation
The US Department of Commerce last week ordered multiple chip equipment companies to halt shipments of certain tools to China’s second-largest chipmaker, Hua Hong Semiconductor Ltd (華虹半導體), its latest action to slow the country’s development of advanced chips, two people familiar with the matter said. The department sent letters to at least a handful of companies informing them of restrictions on tools and other materials destined for two Hua Hong facilities US officials believe make China’s most sophisticated chips, the people said. Top US chip equipment companies Lam Research Corp, Applied Materials Inc and KLA Corp, each of which has significant
RSS