China tries to cool booming economy with interest rate increase

[rcdean]

Source: San Jose Mercury News

(Associated Press)

BEIJING - China raised interest rates today for the second time in just over two months and tightened access to credit in a renewed effort to cool its sizzling economy.

Economists had expected the increase after the government reported investment in real estate, factories and other urban assets was growing by double digits, indicating earlier interest rate rises were failing to moderate the boom.

The latest 0.18 percent increase takes effect tomorrow and raises lending rates to 6.57 percent on a commercial one-year loan, the central bank said on its Web site. The government also ordered commercial banks to increase the amount of money they set aside as reserves to reduce the pool of credit for lending...

China's leaders worry that a construction and lending boom could ignite politically dangerous inflation or a debt crisis.

Read more: http://www.mercurynews.com/breakingnews/ci_5927307

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I'm here in Beijing with a journalist from the WSJ who had to interrupt dinner to cover this.

He feels this is a relatively insignificant move designed to cool the shifting of savings out of banks and into the bubbling Chinese stock market (they have stock investing parlors--like race track betting parlors--on the streets here).

Not mentioned, but of equal significance he feels, is that the Chinese gov also widened somewhat the trading range of the Chinese currency permitting it a bit more latitude for fluctuation, an action probably designed to placate slightly the right wingers in the US congress who believe all our problems could be solved if China permitted its currency to float on the world market.

Both these moves come just a few days before a major Chinese trade delegation leaves for Washington for a series of meetings with their US counterparts.

The Journal won't have the story up on their site until around noon, so this is from the SJMN (a pretty good paper in its own right).

[soothsayer]

1. if the talks don't go well, watch for war to break out with Iran.

we will punish china by cutting off its oil for a couple of months.