China raised banks' reserve requirements for the third time in a month Friday, taking another step to the cool its economy after new data showed a sharp increase in exports and a continued pickup in the property market.
The move by the central bank to raise the reserve-requirement ratio by half a percentage point will reduce the amount of money China's banks have available to lend, though it will likely have a less dramatic impact than the interest-rate hike that some economists had expected.
On Saturday, China's statistics agency is due to publish data that economists expect will show accelerating consumer price inflation, reinforcing the case for tighter policy. China also remains under pressure from other nations to allow its currency to appreciate more quickly.
Exports and imports both soared to monthly records in November, while the country's trade surplus narrowed to $22.9 billion from October's $27.15 billion, data from the Customs bureau showed Friday. The surplus was greater than the $22.3 billion median forecast of 16 economists in a Dow Jones Newswires survey.
Meanwhile, property prices rose for the third consecutive month in November, indicating the property market is rebounding after a minor correction earlier this year despite a series of measures by Beijing to rein in real-estate prices.
"Exceedingly strong exports growth amid an already overheated domestic economy is not good news, as it adds to the overheating pressures which will require the government to take even more stringent measures to bring down inflation," Goldman Sachs economist Yu Song said in a note.
Yet the central bank's decision to raise reserve requirements, a measure with less impact on the economy than an increase in benchmark interest rates, could ease market fears that rising inflation will push authorities to clamp down sharply on growth.
More-stringent measures by Beijing could dash hopes for a pickup in the global economy, as China is one of the few major economies that is growing rapidly. In the U.S., economic indicators such as retail sales and consumer confidence have lately pointed to a pickup in activity, and markets are pricing in greater growth prospects as the Obama administration's tax-cutting deal promises more stimulus for the U.S. next year.
Last week, the Politburo of the Communist Party, the highest decision-making body in China, ratified the transition to a tighter monetary policy, which it now official describes as "prudent" rather than "moderately loose." But so far authorities have moved cautiously in tackling inflation: after raising interest rates once in October, the People's Bank of China raised the reserve requirement on Nov. 19 and Nov. 10.
And even as Beijing signals a shift in policy, signs are emerging that it may be having difficultly constraining the lending activity of the country's banks. Growth in the broad M2 measure of money supply accelerated to 19.5% from a year earlier in November from 19.2% growth, and banks made far more loans than expected.
After financial institutions extended 564 billion yuan ($84.6 billion) in new loans in November, their total new lending for this year now stands to 7.44 trillion yuan. If the central bank strictly enforces its full-year loan target of 7.5 trillion yuan, it would mean that banks have around 60 billion yuan, or less than 1% of the target, to lend in December. Many analysts now expect authorities will allow banks to exceed the target.
China is getting more of a boost from demand from abroad than many had anticipated: The strong growth in exports, up 34.9% in November from a year earlier, far above October's 22.9% rise and economists' median forecast of a 22.4% increase, could be a positive sign for the global economy.
Royal Bank of Scotland economist Ben Simpfendorfer said the strong November export figure is a sign retailers in the U.S. and Europe have stocked up inventories aggressively for the holiday shopping season.
At the same time, the domestic housing market is strong: property sales as measured by floor space rose 14.5% from a year earlier. Nationwide average property prices, based on a survey of 70 cities, rose 0.3% in November from October, the National Bureau of Statistics said Friday, following a 0.2% rise in October and a 0.5% gain in September. Prices were up 7.7% in November from the same month last year.
The increases come despite measures by Beijing in the past several months to cool the property market, including raising down-payment requirements, increasing mortgage rates and curbing lending for additional home purchases.
"Property prices will likely remain high for a while because of inelastic demand and spreading inflationary pressure," Matthew Fang, an analyst at Guosen Securities, said.
At the same time, Chinese authorities have become increasingly concerned about a recent jump in food prices. The latest reading will come on Saturday, when China will issue closely watched inflation data for November. Economists expect the consumer price index to have risen 4.7% in November from a year earlier, accelerating from October's 4.4% rise and the fastest increase in over two years.