CHINESE MOVES to restrain credit growth in its fast-growing economy rattled global markets yesterday at the end of a fractious week for investors, with the euro zone facing its biggest test in a decade.
For a second time in a month, China ordered commercial banks to increase the reserves they hold, sparking fears among investors that the global recovery could stall because of a slowdown in the world’s fastest-growing economy.
Economists said China’s move was an effort to control rapid lending rather than significantly tighten monetary policy. But some investors interpreted the increase in reserve requirements as a move to restrain lending that would slow economic growth.
“The Chinese move hit markets because it is now the economy that everyone is looking at to gauge the strength of the recovery,” said Nigel Rendell, senior emerging markets strategist at RBC Capital Markets. “The US is no longer the lead economy.” Stephen Green, economist at Standard Chartered in Shanghai, said: “This is all about controlling the boom so that we do not have a bust in the second half of the year.”
Reserve requirements for Chinese banks will increase by 50 basis points from February 25th, the central bank said, to 16.5 per cent for large commercial banks.
The decision follows figures released on Thursday which showed new loans in January were more than the previous three months combined, while house prices also increased sharply. – (Copyright The Financial Times Limited 2010)
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