Foreign Currency Reserves and Inflation Soared in China

From Reuters,

China's foreign exchange reserves soared to a record of more than $3 trillion by end-March, while its money supply growth blew past forecasts, threatening to aggravate the nation's inflation woes and trigger more policy tightening.


Chinese banks extended 679.4 billion yuan ($104 billion) in new local currency loans in March, while the broad M2 measure of money supply rose 16.6 percent from a year earlier, both above market expectations.

Tapping the brakes on money and lending growth has been a crucial part of Beijing's campaign to rein in inflation, which probably hit a 32-month high of 5.4 percent in the year to March, according to local media reports.

After making progress at the start of the year in mopping up excess cash, the People's Bank of China appeared to lose some ground in March.

"The latest numbers show that it is still too early for China to ease monetary tightening. China still needs to keep tightening policy at the current pace in coming months," said Qu Hongbin, chief China economist with HSBC...................................................
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China has raised benchmark interest rates four times since last October and has required the country's big banks to lock up a record high of 20.0 percent of their deposits as reserves.

Economists polled by Reuters last week said that China was heading for a pause in its half-year cycle of monetary tightening, forecasting that it would raise interest rates just once more this year.

China and Copper 2009-2010

The $586 million ( 4 trillion Yuan) by the Chinese government has boosted the economy significantly.

In an article by the Associate Press yesterday,

China's economy expanded more than 7 percent in the first nine months of the year and will certainly surpass the 2009 growth target of 8 percent, a top economic official said Monday.


"Achieving a growth rate of 8 percent for the year is basically no problem," Xiong, a deputy director of the National Development and Reform Commission, told reporters........

Statistics for September showed improving trade, housing sales, manufacturing and car sales. The data suggest that resilience in retail sales and industrial production are helping offset the blow from falling exports to China's economy.........

Separately, Yu Bin, a senior researcher with the Cabinet-affiliated Development Research Center told a conference over the weekend that growth was forecast to exceed 9 percent in the second half of the year, the financial magazine Caijing reported Monday.

"The internal and external environment for China's economic growth will be better next year," Yu said.

These bullish forecast shed glossy light on industrials and basic materials. Copper, used in pipes, power cable and other infrastructure, has been in high demand. The apparent consumption in China is very high compared to inventory. The apparent consumption of China in August was reported to be 578300 tonnes compared to 86625 tonnes of exchange inventory in warehouses at Shanghai, Guangdong and Wuxi of Shanghai Futures Exchange. The price of copper is standing near its 2009 high [Click the diagram to enlarge]

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