Jan. 7 - China raised the amount of funds which lenders must hold in reserve for the fourth time since mid-June in its latest attempt to mop up excess liquidity derived from its massive balance of payments surplus.

 

According to Reuters, the People's Bank of China (PBOC) said on its Web site on Friday that banks would need to increase their required reserves by half a percentage point, effective from Jan 15.

 

“This is because of China's continued balance of payments surpluses, fresh growth in already excessive liquidity in the banking system, and relatively high pressure for more lending,” it said in a statement.

 

While recent tightening moves had triggered some easing in credit growth in recent months, the central bank said challenges remained in trying to bring the economy to a more sustainable footing. The central bank announced similar moves on Nov 3, July 21 and June 16 of last year.

 

The increase takes the reserve requirement to 9.5 percent for big state banks and joint-stock banks and to 10.0 percent for smaller banks, including urban credit cooperatives.

 

China's massive balance of payments surplus has been largely generated by a rapidly growing trade surplus, which hit $22.9 billion in November and is expected by many economists to top $175 billion in 2006, up from $102 billion in 2005, when it tripled.

 

The central bank, in an effort to hold down the yuan, buys most of the dollars resulting from the surplus.