November 12, 2007 (LPAC)--The Peoples Bank of China has raised the reserve ratio requirements for banks for the ninth time this year alone, to 13.5%, in an effort to curb the excessive liquidity in the economy. The Chinese currency, the yuan, has been rising at an accellerating rate against the collapsing U.S. dollar in recent weeks. There is heavy pressure on the Chinese government to up-value the yuan, and "hot money," speculating on a yuan re-valuation, continues to flow into China. This external pressure, including China's continuous trade surpluses, are exacerbating internal inflation.

The liquidity excess is worse than the PBOC had expected in October, and therefore the central bank raised the reserve requirement ratio for commercial banks to a 10-year high, Peng Xingyun, a senior researcher at the Chinese Academy of Social Sciences Institute of Finance and Banking, told Xinhua yesterday. Analysts at the Industrial and Commercial Bank of China, the biggest bank, are warning that the liquidity will flow into the existing real estate and stock market bubbles, and predict that the reserve rate will be up to 15% by next year. Peng said that the "PBOC raised the reserve requirement ratio before it released October's money supply and other financial statistics next week, as it is concerned about the excessive liquidity and credit increase." By end September, PBOC figures showed an 18.5% increase in M2 -- cash in circulation and all deposits, year on year, up to 39.3 trillion yuan (US$5.2 trillion).

Last week, at the International Finance Forum in Beijing, the vice chairman of the Standing Committee of the National People's Congress (NPC) Cheng Siwei, warned of the inflationary pressure. "Capital coming from bank deposits, forex reserves and hot money from overseas have raised consumer prices and pushed up both the property market and the stock market at the same time, which traditionally move in opposite directions," Cheng said. Financial measures, including raising reserve requirements, have not curbed the problem, he said. Money laundering is also being targetted. PBOC governor Zhou Xiaochuan told a national meeting on money laundering in Beijing Nov. 9 that China is going to increase measures to control money laundering, and will monitor the securities and insurance companies to safeguard financial security. Zhou Xiaochuan said that China's anti-money laundering efforts have to be improved, and the government would work to amend the Criminal Law to make money-laundering investigations more efficient. Unregistered marketable securities will have to be registered on both arrival and departure, as one key measure, Zhou said.