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Beijing Reins In Lending by Banks

The action comes after a report shows rapid economic growth that could set off inflation.

July 22, 2006|From Times Wire Services

BEIJING — China took action Friday to cool its sizzling economy, tightening bank credit to stop frenzied lending and letting the Chinese currency hit a new high against the dollar.

The move by Beijing followed this week's announcement that the economy surged a stunning 11.3% in the second quarter, its highest rate in a decade, thanks to a construction boom and robust exports. Economists and officials worry that rapid growth could set off inflation or lead to dangerously high debt.

The central bank raised the amount of money that most banks must deposit with the government by half of a percentage point to 8.5% of their deposits as of Aug. 15, thereby reducing the amount available for lending.

Financial analysts had expected Beijing to take steps to restrain the economy. Tightening credit should help damp investment in real estate, factories and other fixed assets that is underpinning the boom. At the same time, a stronger yuan might rein in growth by making Chinese goods more expensive and slowing exports.

But government efforts to slow the economy have so far proved ineffective. Friday's raising of the reserve requirement was the second time the central bank ordered an increase.

Unimpressed by China's latest moves, two U.S. senators warned that they could demand a vote on their bill threatening China with steep U.S. import duties because of the scant progress it has made in revaluing its currency.

"China could clearly do more, and if this pace continues, we will have no choice but to call up our bill for a vote before Congress adjourns for the year," Sens. Charles E. Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) said in a joint statement.

Schumer and Graham are co-authors of bill threatening China with 27.5% tariffs on its exports to the United States if it does not significantly revalue the yuan against the dollar. The legislation enjoys broad congressional support, and the senators already have put off a vote on the bill several times to give Beijing more time to act.

Their joint statement came on the first anniversary of China's decision to raise the value of its currency by 2.1% to 8.11 per dollar. The yuan was freed at the same time from a dollar peg to float against a basket of reference currencies.

The yuan ended Friday at 7.9820 per dollar, its highest close since its revaluation one year ago.

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The Associated Press and Reuters were used in compiling this report.

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