Temat: Asia Markets - Bloomberg.com

China to Take More Steps to Cool Economy, Inflation

By Li Yanping

Jan. 4 (Bloomberg) -- China's central bank said it will take more steps this year to cool inflation and prevent the world's fastest growing major economy from overheating.

A ``tighter monetary policy'' will ``help prevent the economy from overheating and prevent price increases from spreading,'' the central bank said in a statement on its Web site today after concluding a two-day annual work meeting in Beijing. It didn't specify measures it would take.

Top government leaders last month agreed the two key risks facing the economy in 2008 are overheating and inflation, which probably grew at the fastest pace in 11 years in 2007. The People's Bank of China last year raised its benchmark one-year lending rate to a nine-year high and the amount banks must set aside as reserves to the most since at least 1998.

``China needs to continue to tighten monetary policy in 2008,'' said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing.

The central bank is trying to grapple with money flooding the economy from a record trade surplus. The nation's foreign- exchange reserves, the world's biggest, swelled to $1.46 trillion at the end of October.

House prices in 70 major cities jumped 10.5 percent in November from a year earlier. The CSI 300 Index climbed 162 percent last year.

Currency Convertibility

Today's statement omitted any specific policy plans for the yuan, apart from a line that the central bank will ``deepen the foreign-exchange management system and steadily push ahead'' with plans to gradually allow the yuan to be convertible into other currencies for investment, not just trade.

Su Ning, a central vice governor, said yesterday that the bank will increase the flexibility of the exchange rate in 2008 to allow it to play a bigger role in cooling inflation and easing trade imbalances, according to 21st Century Business Herald, a Guangzhou-based newspaper.

China's yuan today climbed to near the strongest since its link to the dollar was scrapped in July 2005.

The yuan gained 0.43 percent this week to 7.2730 per dollar at the 5:30 p.m. close in Shanghai. The currency yesterday touched 7.2721, the strongest since the peg was abandoned.

Interest Rates

Higher interest rates add pressure for the currency to appreciate by making it more attractive as central banks in the U.S., Europe and elsewhere cut or keep borrowing costs on hold because of credit-market turmoil and the U.S. housing recession.

Consumer prices probably climbed 4.7 percent in 2007, according to the country's top economic planning agency, the National Development and Reform Commission. Food prices contributed the most to last year's price gains.

A stronger currency would help cool inflation by lowering import costs and slowing the inflow of money from exports. China's trade surplus surged 52 percent in the 11 months through November to $238.1 billion.

``Flexibility of China's exchange rate has increased notably, and companies have gradually adjusted to market changes,'' the central bank said today, summarizing its past work.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net
Last Updated: January 4, 2008 06:28 EST

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Temat: Asia Markets - Bloomberg.com

China's Wealth Fund Gets More Than 100 Applicants, Person Says

By Josephine Lau and Belinda Cao

Jan. 4 (Bloomberg) -- China Investment Corp., the nation's $200 billion sovereign wealth fund, has received more than 100 applications from money managers to help it invest in global equity markets, a person involved in the selection process said.

Beijing-based CIC, Asia's largest sovereign fund, is taking applications until Jan. 15. It will notify institutions directly after the deadline expires about whether they've been selected, the person said, declining to be identified before a public announcement.

``The potential for global fund managers is huge since CIC has a lot of appetite for foreign expertise,'' said Anny Wong, who helps run institutional sales at BOCI-Prudential Asset Management, which oversees about $5 billion and has submitted an application to CIC. ``We're looking for CIC to be one of our most important clients.''

CIC spent more than $8 billion last year purchasing stakes in Morgan Stanley, the second-biggest U.S. securities firm, and Blackstone Group LP, manager of the world's largest buyout fund. The four-month-old fund may step up overseas investments this year as China encourages capital outflows to limit domestic asset price bubbles and inflation.

The Government of Singapore Investment Corp., which manages more than $100 billion of that nation's reserves, hires outside firms to run some of its funds. Temasek Holdings Pte, which oversees an additional $112 billion on behalf of the city-state, uses only its own fund managers.

`Conservative Approach'

Bai Xiaoqing, an official at CIC's communications office in Beijing, declined to comment.

Firms were invited in December to apply for the chance to invest CIC assets in stocks on the MSCI All Country Index, MSCI EAFE Index, MSCI Emerging Markets Index and in Asia ex-Japan equities. They must have at least $5 billion of assets under management to be eligible, the sovereign fund said in a Dec. 12 statement.

``CIC will likely focus on index funds and investments with quantitative strategies,'' said Howard Wang, who oversees $14 billion at JF Asset Management Ltd. in Hong Kong. ``It'll take a conservative approach to save powder for other government goals, such as injecting money into Chinese banks.''

Wang declined to say whether his firm has applied to CIC.

CIC will inject $20 billion into China Development Bank, which funds the country's public works projects, as the government nears the end of its decade-long restructuring of the banking industry. Li Yong, China's vice finance minister, said in November that CIC will invest a combined $67 billion in China Development and the Agricultural Bank of China, which serves the nation's farmers.

Inflationary Pressure

Ballooning trade surpluses have swelled China's foreign exchange reserves to $1.46 trillion, the highest ever in any nation. That's helped drive inflation to an 11-year high, and contributed to a 162 percent surge in the benchmark CSI 300 Index last year.

Premier Wen Jiabao has encouraged capital outflows, seeking to cool inflationary pressures. As part of that effort, China last year expanded the scope for domestic fund managers, banks and insurers to invest more overseas.

To contact the reporter on this story: Josephine Lau in Beijing at jlau22@bloomberg.net Belinda Cao in Beijing at lcao4@bloomberg.net
Last Updated: January 4, 2008 03:46 EST

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