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China tightens bank holding requirement

By Aaron Smith, staff writer


NEW YORK (CNNMoney.com) -- China, in response to the Federal Reserve's move to inject billions into the U.S. economy, has raised the reserve requirement ratio on major banks in an attempt to control its flow of new money.

The People's Bank of China raised the ratio by half a percentage point between now and Nov. 16.

Mark Williams, senior China economist for Capital Economics Ltd. in London, said the new ratio is unknown, but it's probably 18.5%.

"The reserve ratio hike helps the People's Bank to mop up some of the currency flowing into the Chinese economy from strong exports and inward investment," he said. "But the move also allows policymakers to signal their continued concern about the current pace of loan growth."

The Chinese government is one of several that has been critical of the Fed's decision last week, calling it inflationary. U.S. officials, on the other hand, have been trying to get Beijing to increase the value of its currency in order to help spur a global economic recovery. (It's not just the dollar's fault)

The reserve ratio increase is completely separate from the currency controls that the People's Bank imposes on the renminbi every day.

The move came after China announced that its trade surplus surged in October to $27.2 billion, up more than 60% from its September surplus of $16.9 billion. To top of page

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