China Increase Bank Reserve Requirements

Darlington Musarurwa
12 Jan, 2010
New York City

In an apparent move to remove government stimulus, the People

[R]8:00 PM Hong Kong – In an apparent move to remove government stimulus, the People’s Bank of China increased bank reserve requirements by 0.5% from next week. The move is expected to have little effect on the growing real estate prices that some say are teetering towards bubble. [/R]

Stocks in Hong Kong declined and in Shanghai gained after China increased reserve requirements for banks to curb the growing speculation in real estate market and prevent economic overheating.

Hang Seng index in Hong Kong decreased 84.88 or 0.38% to 22,326.64, and CSI 300 index in China higher 52.86 or 1.52% to 3,534.92.

Severe weather in China is likely to force power generation companies to shut plants. Rising demand from cold weather and lack of required coals supplies may force several companies to curb the power production.

The People’s Bank of China increased bank reserve requirements by 50 basis points as of Jan 18. Large banks currently keep 15.5% and small bank maintain 13.5% of assets in reserves. China increased the reserve limits in September 2008 to 17.5%.

Chinese banks approved Rmb 9.21 trillion or $1.3 trillion of loans in the first eleven months of 2009. The higher reserves are expected to remove between Rmb 250 billion and Rmb 320 billion in liquidity form the financial system.

Other Movers

Aluminum Corporation of China Limited fell 2.25% to HK$10.40.

BYD Company Limited fell 0.9% to HK$67.45 after the maker of batteries and cars may sell a rechargeable electric car in the U.S. as early as this year according to its founders.

China Coal Energy Company Limited fell 3.7% to HK$15.32.

China Shenhua Energy Company Limited the coal producer rose 0.9% to HK$40.75.

Geely Automobile Holdings Limited added 1.4% to HK$4.15 after the Chinese automaker plans to build R&D center in the eastern city of Hangzhou, Zhejiang Province, this year with total phase I investment of Rmb 350 million.

Haier Electronics Group Co., Ltd rose 0.6% to HK$4.81 after the refrigerator and washing machine maker said Japanese demand will help sustain sales-growth “momentum” this year. Sales in 2009 increased 10%.

PetroChina Company Limited dropped 0.7% to HK$10.10 following the lower energy prices in international markets.