Source AP ©

China tightens credit to cool investment boom

China trying to avoid the financial crisis told banks Thursday to increase their reserves for the third time this year, cutting the amount of money available for lending in a new effort to cool an investment boom.

The order comes on top of repeated interest rate hikes and investment curbs imposed on real estate, auto manufacturing and other industries over the past year. The effort has had limited success in slowing the growth of investment.

The amount of reserves that lenders must keep with the central bank was raised 0.5 point to 10.5 percent of their deposits, the central bank said. The increase takes effect April 16.

The central bank intends to "maintain liquidity at an appropriate level and prevent the overly fast growth of credit," the bank said on its Web site.

Chinese leaders want to maintain rapid growth in the economy, which expanded by 10.7 percent last year. But they worry that excessive investment in real estate, factories and other assets will leave banks with dangerously high debts if borrowers go bankrupt.

Despite the controls, total investment rose by 24 percent last year, according to government figures.

Beijing has raised the bank reserve ratio six times over the past year, each time by 0.5 percentage point. It stood at 7.5 percent of deposits before the first increase last June. The last increase was on Feb. 16.

Economists expect similar reserve increases once every quarter this year to compensate for the swelling amount of money in the banking system amid multibillion-dollar export surpluses.

Interest rates also have been raised three times since last April, but still stand at a relatively low 6.39 percent for commercial loans.

The trade surplus rose 74 percent last year to US$177.5 billion, straining ties with Washington and other trading partners.

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