A surge in bank lending last month prompted the central bank to ask lenders to set aside more money as reserves. The government will probably continue "tweaking the system" this year, said Arjuna Mahendran, the chief investment strategist for Asia at HSBC Private Bank.
"With the prospect of inflation starting to rear its ugly head, central bankers are now trying to tighten policy," Mahendran said in a Bloomberg Television interview from Tokyo. "Monetary tightening is having the desired effect, which is to see that the stock market doesn't get too exuberant."
The Shanghai Composite Index, which jumped 80 percent in 2009, has slipped 0.9 percent this year. The Hang Seng China Enterprises Index, tracking Hong Kong-traded mainland companies, has declined 1.5 percent. That makes China the worst performer among the world's 10 largest stock markets by value this year, according to data tracked by Bloomberg.
The government measures were introduced to take "some of the heat out of the economy," Jim Rogers, an investor and author of "A Bull in China," said in an interview yesterday. Shanghai and Hong Kong property prices may fall after being driven higher by speculative demand, he said, while the rest of the Chinese economy is "hardly in a bubble."
Record Loan Growth
Chinese lenders extended 379.8 billion yuan ($55.6 billion) of new loans last month, capping a record 9.59 trillion yuan of credit expansion for the year. The surge in loans helped China supplant the U.S. as the world's largest auto market, after 2009 vehicle sales jumped 46 percent, while property sales climbed 76 percent, official reports showed.
"The December numbers were considerably higher than the level for November or October," Mahendran said. "That, I think, suggests there's another rash of bank lending in China and the authorities are now getting a bit concerned about how to prevent this enthusiasm from getting carried away as it did early last year."
In addition to raising the reserve ratio, the People's Bank of China also guided its benchmark one-year bill yield to the highest level in 14 months. The central bank this week sold the bills at a rate of 1.9264 percent in open-market operations, according to data compiled by Bloomberg. The yield rose eight basis points, the same as last week, after five months during which the benchmark was held unchanged.
Major Chinese commercial banks received verbal orders from authorities to halt new lending in the remainder of January, the China Securities Journal reported today, citing unidentified people in Beijing and Shanghai.
The nation's consumer price index will gain 1.4 percent in December, according to economists surveyed by Bloomberg, following a 0.6 percent increase in November. The statistics bureau is scheduled to release monthly data on Jan. 21.
--Editors: Linus Chua, Reinie Booysen
