Chinese Mandarin - China likely to hike interest rates again in 2nd quarter

BIZCHINA / Comments & Analysis - Overseas

China likely to hike interest rates again in 2nd quarter

(XFN-Asia)
Updated: 2007-03-20 14:27

China's central bank is likely to raise interest rates again in the
second quarter, after it announced a 27 basis points increase in the
benchmark one-year deposit and lending rates on Saturday, Standard
Chartered said.

In a research note, Standard Chartered said the central bank's next move
will be data-dependent and probably will not come for some time, but it
expects another hike of 27 basis points towards the end of the second
quarter.

Inflation is seen rising in China over the coming months due to higher
food prices and possible liberalization of utility prices.

There is also likely to be a rebound in fixed-asset investment, Standard
Chartered said.

"We expect the central bank to raise its benchmark rate again by the same
magnitude late in the second quarter," the brokerage said.

"This will also help to curb investor enthusiasm in the stock market,
which the central government is not totally comfortable with," it added.

Credit Suisse economist Dong Tao agreed that another hike is likely this
year.

"Tightening measures could escalate at around mid-year, if the consumer
price index exceeds the three percent ceiling and the stock market
becomes overly speculative," he said.

But Lehman Brothers economist Mingchun Sun said he did not expect further
rate hikes this year, though the central bank is likely to take other
policy tightening measures.

"The People's Bank of China may be expecting CPI inflation and economic
growth to moderate later, despite a very strong start in 2007. We also
expect CPI inflation to fall sharply in the fourth quarter, after peaking
at around 3.0 percent in July, thus we expect the central bank to stay
(keep benchmark rates) on hold over the rest of 2007," Sun said.

He added though that CPI inflation is likely to pick up in 2008, and this
should prompt two further rate hikes next year.

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Chinese Mandarin

Chinesepod - M2 growth slows as measures kick in

BIZCHINA / Statistics

M2 growth slows as measures kick in

By Zheng Lifei (China Daily)
Updated: 2006-10-14 09:10

Money supply and lending growth continued their downward spiral in
September, a sign that the government's tight monetary measures are
working.

The broad M2 money supply, which covers cash in circulation and deposits,
grew 16.83 per cent in September from a year earlier, down from a 17.9
per cent growth in the previous month, according to figures released by
the central bank on Friday.

It was up 18.4 per cent in July from a year earlier.

Local currency loans climbed 15.23 per cent last month from a year
earlier, continuing a decrease in the growth rate in the last two months.

They grew 16.3 per cent in July, slowing slightly to 16.1 per cent in
August.

"Both money supply and lending growth slowed in the third quarter,
indicating that the macro controls in the financial field are taking
effect," the People's Bank of China said in a report.

The central bank has twice raised banks' reserve ratio requirements. The
money commercial banks are required to deposit in the central bank to
curb their lending capacity and interest rates this year.

In addition, the central bank has issued a series of administrative
directives and used "window guidance" to restrain banks from loose
lending.

The new figures may mean the possibility of further tightening reforms is
becoming more remote at least in the short term, said economists.

"Slower money and credit growth in September confirms that the near-term
risks of further policy tightening have been reduced," the Hong Kong
branch of investment bank Goldman Sachs said in a note to its clients.

The bank also downplayed concerns over the slowing money supply and loan
growth's impact on economic growth.

"We do not take the softer money and credit data as indicating risks to
growth, given the buoyant performance of the domestic equity market and
lower market interest rates," said the bank.

Fuelled by the swelling foreign trade surplus and inflow of foreign
investment, China's foreign exchange reserves, already the world's
largest, soared by US$46.8 billion in the third quarter of 2006, reaching
US$987.9 billion, the central bank said on Friday.

They had increased by US$66 billion in the second quarter and US$56.2
billion in the first quarter.

China's foreign trade surplus hit US$15.3 billion in September, the
second highest monthly record in the first three quarters, according to
statistics released by the General Administration of Customs.

The ballooning foreign exchange reserves have taken the blame for the
growth of money supply, with the central bank issuing extra additional
money to mop up the excess US dollars in the market, resulting in
excessive liquidity in the banking system.

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Chinesepod

Chinese School - PetroChina's price drop fuels talk of change

BIZCHINA / Opinions

PetroChina's price drop fuels talk of change

(Shanghai Daily)
Updated: 2007-03-16 08:56

Although PetroChina Co claimed its move to cut street gasoline prices
last week was a temporary and regional promotion, analysts said it might
signal the trend of more flexible fuel pricing as competition increases.

Usually, PetroChina and rival Sinopec Corp, which dominate China's
fuel-sales market, set the same gas prices. Independent pump-station
operators are forced to offer the same prices as they are constrained by
PetroChina and Sinopec in fuel supply.

However, PetroChina's month-long discount program, starting last Thursday
in about 100 of its select stations in Beijing, broke its price alliance
with Sinopec. In past years, any rate adjustment was directed by the top
planner, the National Development and Reform Commission.

"This is a promotional event, aimed to reduce our inventories in the
north and return some profit to our customers," a Hong Kong-based
spokesman for PetroChina said. "It won't be developed as a nationwide
program."

One analyst said it was the weather that led to PetroChina's increasing
inventories in Beijing. Some of PetroChina's fuel cargoes to the south
were delayed due to the cold weather.

PetroChina cut pump prices in Beijing by between 0.05 yuan and 0.2 yuan
(2 US cents) a liter, depending on their locations. That's about a
reduction of two percent to five percent, according to UBS AG.

This could boost sales volume by up to a third at discount PetroChina
stations, local Beijing media quoted industry sources as saying.

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Chinese School