China makes moves to curb inflation
By Justine Lau in Hong Kong and Geoff Dyer in Beijing
Published: November 19 2010 13:34 | Last updated: November 19 2010 19:36
Beijing and Hong Kong have unveiled a raft of measures to curb rising prices as both governments struggle to curb inflationary pressures and real estate speculation in their fast-growing economies.
The Chinese central bank on Friday raised capital reserve requirements for its banks for the fifth time this year to “appropriately control” credit and liquidity. Meanwhile, the Hong Kong government significantly raised the stamp duty on residential property transactions to damp property speculation.
The moves coincided with a speech by Ben Bernanke, chairman of the US Federal Reserve, who launched a strong defence of the Fed’s new $600bn stimulus programme – known as quantitative easing, or QE2 – and also criticised China’s currency policy.
While Chinese officials have passed some blame for rising inflationary pressures in the country on to loose monetary policy in the US, Mr Bernanke said China’s own policy of depressing the value of its currency was creating difficulties for the management of its economy.
“Currency undervaluation by surplus countries is inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals,” he said in a speech in Frankfurt.
The People’s Bank of China said the proportion of deposits to be set aside by banks should increase by 50 basis points to 18.5 per cent for large banks, the highest ever.
The widely expected move follows figures that showed that consumer price inflation in China jumped last month to 4.4 per cent – well above the government’s target of 3 per cent – amid sharp rises in the price of some foods.
In an effort to tackle spiralling property prices in Hong Kong – partly because of an influx of money from mainland China – the government raised the stamp duty on properties resold within six months to 15 per cent.
Separately, the Hong Kong Monetary Authority, the territory’s de facto central bank, announced an increase in the down payment for properties worth more than HK$12m ($1.5m) to 50 per cent, up from 40 per cent.
It has also increased the deposit requirement on any properties not occupied by owners or held by a company to 50 per cent.
In Hong Kong, analysts described these moves as the territory’s response to quantitative easing in the US, to stay in step with governments elsewhere, who are trying to control surging capital flows.
China’s trade surplus has picked up again in recent months, reaching $27bn in October, which adds to the already abundant liquidity in the domestic economy.
Mainland China has already raised interest rates once and is expected to increase them several times over the next two quarters.
The rise in property prices in Hong Kong of about 50 per cent since the end of 2008 has led to increasing concern among young middle class residents that they will never be able to buy their own homes.
A flood of mainland property buyers looking to diversify their asset holdings has also added to the steep increase in prices.
Norman Chan, the HKMA’s head, on Friday said many investors “tend to harbour rather unreasonable expectations that interest rates would stay at such low levels for a very long time and that housing prices can only go up and not down”.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.