China reserve requirement ratios now 5.5 percent higher than U.S. norm
By Chris Devonshire-Ellis
BEIJING, Mar. 21 - The Chinese government has announced its 15th increase since mid 2006 of the minimum reserve ratio deposit lenders must hold in reserve, to a record high of 15.5 percent. This compares to the United States, reeling from sub-prime debt, where the system is based upon a sliding scale depending upon available reserves and the size and type of lending, of just 10 percent.
The move may have short term fall out repercussions in China. Banks that are under-funded will fall more under the control of the People’s Bank of China, and some smaller provincial lenders may indeed be allowed to collapse into absorption, depending upon the lenders and the nature of the debt. China, mindful of social unrest issues, is more likely to bail out errant lenders unable to maintain sufficient liquidity, although it will be at the price of giving Beijing more control.
It means that Beijing has achieved three objectives; one, being able to reign in the more previously aggressive provincial and local city banks, and collectively seek to dismantle bad debt on their books and manage this from a local welfare perspective, two, in bringing in a measure to control inflation through better control of it’s lending facilities, and third, although not acknowledged, via the re-packaging of debt to domestic and Hong Kong based reinsures ready to take a punt on the growing ability to recover debt from the developing commercial and middle class of China’s major cities. (more…)