China’s central bank has announced that it will raise its reserve requirement ratio for all domestic banks by 0.5 percentage points, effective from Monday, May 18.
The People’s Bank of China made the announcement last night, a day after the April CPI figures showed a tiny fall to 5.3% (annual) from 5.4%.on Thursday.
That was the 7th month in a row that the CPI has exceeded the 4% target rate for this year which was raised last year from the previous 3% target rate.
It is the 8th time since last November that the bank has raised the reserve ratio, which will reach a new record high of 21% for major financial institutions.
The central bank has also boosted interest rates four times since last October.
Raising the ratio of money amount that banks deposit with the central bank is expected to help absorb excess money in the market and curb lending.
Expectations of further policy tightenings saw the Shanghai stockmarket to fall by nearly 1.4% on Thursday.
There was plenty excitement this week from the Federal Treasurer, analysts and the media about how the Australian economy was now dependant upon China and how the 2011-12 budget strategy was hostage to China’s fortunes.
Then a day later the usual flow of monthly data from China left us a bit wiser about how the Chinese economy was travelling: the bottom line was OK and probably a bit better than some of the gloomsters in the media and politics would have you believe.
But why the surprise about the importance of China? In fact much of the commentary is a joke.
The Reserve Bank, from Governor Glenn Stevens down have been pointing this out now for two years or more, and the story has been showing up in the monthly and quarterly trade figures.
Sometimes you’d be excused for thinking that many in the media and quite a few analysts don’t listen to what the RBA says in reports and speeches or what the Australian Bureau of Statistics puts in its various reports.
The importance of China and the absolute importance of iron ore and coal exports was highlighted for those who looked in the March monthly (and nine month) trade figures released on Tuesday and buried by the budget a few hours later.
The figures clearly showed that exports to China are rising much faster than imports.
In the nine months to March the trade surplus with that country was $15.74 billion, more than 50% higher than the same period in 2009-10.
In fact exports in the first nine months of the 2011 financial year at $47.04 billion just topped the amount for all of the 2010 financial year of $46.51 billion.
Imports had fallen to $31.3 billion in the nine months to March this year, from $36.3 million.
The trade surplus with Japan and South Korea were higher by around $2 billion and $2.5 billion respectively because of the higher priced shipments of coal and iron ore (plus some oil and LNG).
But the trade boom with India has well and truly faded and the surplus is down around $4.8 billion at $9.58 billion.
Lower shipments of coal in the March quarter was part of the reason.
Australia’s trade surplus with China hit a new record of $2.62 billion in March, beating December’s $2.53 billion, rising to $22 billion on a 12-month basis.
Exports are running 20.5% or $39.8 billion ahead of where they were a year ago in the nine months to March ($179.45 billion vs. $139.63 billion.)
Imports are up 5.7%, or 8.71 billion in the nine months to March at $160.34 billion.
And the detail of the trade figures show clearly the reason for the improvement in the trade account.
On China’s side, this week’s import figures showed signs of a slight cooling in China’s production and imports data in April.
But the bottom line seems to be that the strength of demand for iron ore remains solid, even though imports dipped in the month.
Oil imports were higher, but copper imports fell sharply and rubber imports were lower as well.
Crude steel output rose 7.1% to 59.03 million tonnes in April, down slightly compared with March’s 59.4 million tonnes and 54 million in February,
But it was higher when calculated on a daily basis.
Daily output over the month reached a record 1.968 million tonnes, up from 1.917 million tonnes in March.
And production for the four months to April was 229.71 million tonnes, up 8.3% from the same period of last year.
Crude oil production increased 4.4% from a year earlier to 16.96 million tonnes in April and were up 6.1% in the first four months of the year from the same period of 2010.
Production of cement rose 22.4% in April from a year ago and electricity generating was up 11.7% from a year ago as well, both positive signs.
Imports of iron ore dipped 11% month-on-month in April to 52.88 million tonnes in April, down from March’s 59.84 million tonnes and off 4.4% from April of last year.
Natural-rubber imports dropped 14% from March as slower growth in vehicle sales crimped demand from tyre makers, as we saw the fall in car production and sales, especially among Japanese automakers.
China said its crude oil imports hit 21.54 million tons in April, up by 1.7% from April a year ago, or 5.27 million barrels a day (bpd).
Imports eased 0.6% from March’s 21.67 million tons (5.13 million bpd).
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