China has again moved to try and control its surging economy by ordering banks to put aside more reserves.
It was the ninth such order this year and means that the banks will have to maintain 13.5% of their assets in reserves.
"To strengthen liquidity management in the banking system and curb excessive loan growth",' lenders must set aside 13.5% of deposits from Nov. 26, the People's Bank of China said on its Web site on Saturday. The ratio was increased from 13% and is the highest for at least 10 years.
The move came ahead of the imminent release of trade figures for October which are expected to show a surplus of perhaps as much as $US30 billion, a figure that will cause more tensions between China, Europe and the US.
And inflation figures for last month are expected later today and will show little change in the present high level of price pressure with the annual rate put at more than 6%.
For Australia though, it a sign that the China export machine is in top gear.
Besides raising the required reserve ratio, the People's Bank has increased interest rates five times this year and sold bills to soak up cash from the financial system. A further rise in interest rates is now expected within the next week or two.
Economists say that a $US30 billion trade figure would represent a rise of around 30% from October 2006. October is usually the peak month for China's exports as billions of dollars worth of consumer products flood outwards to the US, Europe, Asia and Australia for the huge retailing Christmas-New Year seasons.
A figure of around $US30 billion would take the year so far figure to more than $US216 billion. September's figure of $US24 billion was half more than 50% from a year earlier while the all time high for a monthly trade surplus for the country is $26.4 billion in June.
Analysts in Hong Kong expect more official action from Beijing in the coming week ahead of the arrival next month of US Treasury Secretary for another round of bilateral talks on trade and economic issues.
Paulson will be attending the third round of the Strategic Economic Dialogue, twice-annual talks with China set up last year to try and handle trade and economic issues, without allowing them to spillover into the US election campaigns now well underway for Congress and the Presidency in a year's time.
Analysts say the Yuan had the biggest monthly gain this year in May, when the last such meeting was held, so we should watch for another solid rise in the next three weeks or so, especially if the US currency continues to weaken because of the worries about the state of the financial sector and the health of the American economy.
The Fed is now expected to cut interest rates by another 0.25% on December 11 to take pressure off the balance sheets of Wall Street, rather than help the economy.
Paulson took a swipe at China on Friday saying China was "out of step'' with the rest of the world's calls to let the Yuan appreciate.
The US is watching the greenback fall to successive record lows against the euro while the Yuan appreciates gradually (but has fallen against the euro!).
"China is increasingly seen as out of step with international norms and expectations, as evidenced by the growing number of national leaders and multilateral institutions calling for currency appreciation," Paulson said.
He said China needs "more flexible prices, including a much more flexible, market-driven exchange rate".
China is using the weakening US to let the Yuan rise a bit faster than normal: last week it gained noticeably by Friday with its largest weekly rise since it was allowed to move in July 2006: it is up 11.6% against the US dollar in that time.
The Chinese Government has allowed the currency to have a number of 'record' weekly gains in the past few months to try and appease the pressure from the US and Europe
China's central bank said on the weekend that it will "strengthen the role of prices in managing the economy'' and improve the coordination of interest-rate and exchange-rate policies. It also said moderate currency appreciation may help to ease inflation pressures.
Consumer prices rose 6.2%, down from 6.5% the previous month. The cost of food such as pork and dairy products is driving up inflation. China has ordered all levels of government to freeze all prices, fees and charges that administer at least until the end of the year.
But last week the central Government was caught short by surging world oil prices and it had to announce a 10% rise in the price of petrol, jet fuel and diesel. That was to allow the state-owned and semi-state owned companies to recover the higher cost of oil in higher prices for the major selling products inside the country.
That was a significant concession and shows the pressures the Government is under from the strong economy, the price inflation and the needs of the rapidly evolving state owned and semi-state owned energy giants, many of which have stratospheric stockmarket valuations.
