CHINA ordered commercial banks over the weekend to set aside more reserve-requirement money for the ninth time this year in yet another bid to curb liquidity and rein in an economy in overdrive.

The People's Bank of China said on Saturday that the ratio for the reserve requirement - the money financial institutions must set aside with the central bank for non-lending purposes - will be raised half a percentage point, to 13.5 percent, as of November 26.

"The move is intended to strengthen liquidity management in the banking system and check excessive credit growth," the central bank said on its Website.

Economists widely forecast the latest reserve-requirement lift and have predicted more stringency measures in the short term, including interest rates increases.

Stephen Green, a Standard Chartered Bank senior economist, said he believes the reserve-requirement ratio will reach 14 percent by the end of this year and move to as high as 16 percent next year as the economy and excess liquidity show no signs of abatement.

"The move may not severely hit the stock market as such austerity moves have been expected," said Qiu Zhicheng, a Haitong Securities Co analyst.

The benchmark Shanghai Composite Index has more than doubled this year after rising 130 percent in 2006. The index underwent a short-term correction last week, though analysts said that the long bull run is probably ongoing.

China's M2, the broadest measure of money supply, has risen 18.45 percent year on year to 39.31 trillion yuan (US$5.30 trillion). The growth is 1.39 percentage points higher than the level at the end of the second quarter. The increase is also 0.36 percentage point higher than a month ago.

Yuan-backed lending rose 17.13 percent to 25.9 trillion yuan at the end of September, 0.65 percentage point higher than the previous quarter.

China has already increased its interest rates on lending and deposits five times this year.

The nation's economy is in its fifth straight year of double-digit growth, reaching 11.5 percent in the third quarter this year and faces high inflation.

Caution rules

A senior researcher with the Chinese Academy of Social Sciences said yesterday the ratio increase reveals that the country's liquidity level has risen beyond the expectations of the central bank.

Peng Xingyun, of the CASS Institute of Finance and Banking, told Xinhua news agency that the bank was exercising caution. "The PBOC raised the reserve-requirement ratio before it releases October's money supply and other financial statistics this week, as it is concerned about the excessive liquidity and credit increase," said Peng.

Last week Cheng Siwei, vice chairman of the National People's Congress, said the economy will overheat unless the issue of excess liquidity can be solved substantially.

"Capital coming from bank deposits, foreign-exchange reserves and a rush of money from overseas have raised consumer prices and pushed up both the property market and the stock market at the same time, which traditionally move in opposite directions," said Cheng, who is also a leading economist.