On the eve of the People's Congress, which starts in Beijing later today, the Central Bank has ordered the country's banks to increase their reserve deposit ratio to 13%, the eighth such move this year. Seven previous upward moves in the ratio (at half a per cent a time) and five interest rate rises have failed to slow the economy, which will be shown to have grown at 11% or more when third quarter growth figures are released in the midst of the People's Congress. The one year interest rate was set at 7.29% last month, the fifth increase this year. From October 25, lenders must put 13% deposits into reserves, up from 12.5%. That's the highest in almost a decade.

Some analysts now expect another rate rise in about a week's time, as happened last month: the reserve ratio was lifted and then rates followed a few days later. The move follows confirmation Friday night that China's trade surplus jumped 56% in September (compared to September last year), taking it to $US185.65 billion for the first nine months of the year, above 2006's figure of $US177.5 billion.

That was after a September trade surplus of $23.9 billion, up from $US15.3 billion a year ago. But the most important figures due out in the next few days will be the inflation numbers for September. August's were a problem: up 6.5% on August 2006 because of an explosion in pork prices due to supply shortages and illness in swine herds.

Frozen
All government-regulated prices have been frozen until the end of the year, and the state has boosted the supply of grains, vegetables and pigs and cracked down on price increases. The central bank has sold bills to soak up cash from the financial system. (Billions of dollars worth of bills were sold last week in a determined attempt to soak up surplus cash. The increase in the reserve ratio should be seen as part of that response.) That confirmed inflation as the major issue for the ruling Communist Party ahead of the 17th National Congress: it meets every five years and this week is expected to see a large number of senior leadership changes, with the head of the Central Bank replaced and a new Finance Minister.

Action on pollution and product safety are also expected, and US and European governments want something symbolic on the issue of the value of China's Yuan. The Yuan has gained about 10% to 7.51 versus the dollar since the end of a fixed exchange rate in July 2005 but the latest huge trade surplus has added to the pressure. The surplus of $US23.9 billion last month came despite a slow-down in sales to the US, caused by the sluggish US economy and also several product safety scandals and recalls (Mattel toys, toothpaste and dodgy blankets in Australia).

Chinese exports rose 22.8% last month to $US112.48 billion and imports had the smallest gain in three months, up 16.1% to $88.57 billion. And China of course isn't the only booming economy in our region. (Singapore and Hong Kong are doing fine) and late last week more confirmation that Indian industrial production was continuing to exceed forecasts. Figures show that India's industrial output jumped sharply in August to record the best growth for five months. The country's statistics bureau said that production at factories, utilities and mines jumped 10.7% from August 2006, after rising a revised 7.5% in July. Manufacturing output rose 10.4%, more than July's 7.9% increase. Rising industrial production has helped India's economy expand at a record 8.6% since 2003, the second-fastest after China among major economies.