Chinese Interest Rates Go Up
For the first time in nine years, the Chinese government
has raised interest rates. The rate for one year loans
will go up 0.27 basis points to 5.58%, and will go into
effect on Friday. The one-year deposit rate will be raised
to 2.25% from 1.98%, the first increase in the interest
rate paid on savings since July 1993,according to Peoples'
Bank of China, China's central bank.
The move is an additional measure to force the Chinese
economy, which has been growing at 9%, to cool down. Inflation
is currently running at 5.2%. Real estate prices have
risen by 9.9% for the whole country, with prices rising
fastest in Shenyang (19.2%) and Nanchang (23.7%) and relatively
less-developed areas. Foreign direct investment into China
for 2004 is estimated to top US$60 billion this year,
which has put excess liquidity into the Chinese financial
system, just at a time when it is undergoing major
changes. So far, the Chinese government has relied
on administrative
orders to dampen the economy, but its effect is limited.
The rise in interest rates is also seen as an effort
to reduce pressure to loosen the peg between the US dollar
and the Chinese yuan, which have been pegged at 8.28 yuan
to one US dollar since 1995. While strong pressure have
come from the US, Japan and the EU to loosen the peg,
China has stood firm, fearing that a stronger yuan would
lead to higher unemployment numbers and social instability.
The Chinese government has delayed opening the domestic
market as long as it can, but in the next four years,
it will have to open sectors to non-Chinese competition
in order to comply with WTO rules.
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