China's overheating economy

Daniel Christopher Jones

China's central bank has intervened to prevent the country's economy from overheating by making moves to curb lending in its banking system through a series of telephone calls to some of the country's biggest banks.

China's central bank has intervened to prevent the country's economy from overheating by making moves to curb lending in its banking system through a series of telephone calls to some of the country's biggest banks.

Chinese banks must now keep more money back in reserves, the first such increase since June 2008, thereby taking cash out of the economy, as reported by the BBC.

Chinese Premier Wen Jiabao recently urged banks to be "more balanced" in the way they lend money after the government became concerned about inflation and potential asset bubbles in stocks and property as the nation's economy continues to boom.

Interest rates raised

The interest rate has also been raised by the People's Bank of China in attempt to remove even more cash from the economic system.

"It would be good if our bank lending was more balanced, better structured and not on such a large scale," Mr. Wen said recently, according to the Xinhua news agency.

This news comes just a day after the state's media circulate rumours banks had extended 600 billion yuan (US$88 billion) in loans in the first week of January alone.

"Leading the world out of recession"

In the midst of the global economic crisis China embarked on what it called a "moderately loose" monetary policy over the past twelve months to make sure the economy continued growing.

Towards the end of last year it emerged that Asian countries were "leading the world out of recession". The International Monetary Fund said that Asia would grow by 2.75 percent in 2009 and 5.75 percent in 2010, compared with flat to negative growth in the US and Western Europe.

China itself announced it is targeting economic growth of eight percent this year.