China eases bank restriction to boost growth

@CNNMoney February 20, 2012: 8:38 AM ET

NEW YORK (CNNMoney) -- China's central bank said it would cut the amount banks must hold in reserve, a step toward boosting lending and maintaining strong economic growth.

The People's Bank of China said it would cut the so-called reserve requirement by 0.5%, the second such move in three months, following several increases since 2008.

The decision comes as China tries to pull off a soft landing: It must let economic growth slow enough to prevent inflation -- but it doesn't want growth to slow too much.

Inflation in China is already a concern, rising at a rate of 4.5% as of January, though that is more tame than last summer when prices were rising 6.5%. Food prices were up 10.5% in January.

The Chinese economy grew at an annual pace of 8.9% in the last three months of 2011.

China, the world's second largest economy behind the United States, has grown at an average annual rate of about 10% for the past 30 years.

A growing chorus of skeptics say China's economy is a bubble set to burst. They worry about massive over construction that has resulted in empty buildings and infrastructure projects of little value.

Most notable is short-seller Jim Chanos of Kynikos Associates. "We are seeing rapid falloffs in demand in things like construction equipment, railway construction over there, housing sales -- so lots of things are slowing down pretty quickly over there," Chanos said in an interview with CNNMoney this week.

Chanos also thinks the Chinese government is over-stating growth and understating inflation. To top of page

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