Not long after the US Federal Reserve Board announced its second round of quantitative easing (QE2), the People's Bank of China (PBC), China's central bank, announced two increases of 0.5 percentage points in the required reserve ratio (RRR) of bank deposits. The RRR now stands at 18.5 per cent, a historic high.
While the Fed is planning to pump more money into the US economy, the PBC is trying to reduce the amount of money in circulation in China. Money used by commercial banks to satisfy the RRR, which is held in accounts at the PBC, can no longer be extended as loans. As a result, more money than ever is now frozen or inactive in China.
It is understandable that the Fed wants to boost demand as long as the US economy remains depressed. But why has the PBC tightened monetary policy so much? The Chinese economy is not overheating. Growth is still high, at about 10 per cent per year, but has started to moderate. And, while inflation is a concern - having risen to 4.4 per cent year on year in October, from 3.6 per cent in September - this cannot explain why the PBC raised the RRR three times earlier this year, when inflation was lower.
Instead, the PBC's policy is pre-emptive: sterilise over-liquidity and get the money supply under control to prevent inflation or overheating. At the beginning of the year, the RRR increases could be regarded as part of efforts to correct the oversupply of money that arose from the anti-crisis stimulus package. But the most recent RRR increases serve mainly to sterilise the "passive money supply" caused by the increase in foreign exchange reserves.
In September alone, China's foreign currency reserves increased by almost US$100 billion (Dh367.3bn) compared with August. With the global economy recovering, China's trade surplus began to grow. Moreover, capital inflows increased significantly because of real investment opportunities in the high-growth economy and the expectation of yuan revaluation.
But rapid growth in foreign exchange reserves means an increase in the domestic money supply, because the PBC issues 6.64 yuan (fractionally less than $1, and down 3 per cent since June) for every dollar it receives. That means money supply increased by nearly 700bn yuan (Dh385.43bn) in September. The two 50-basis-point RRR increases just locked up the same amount of liquidity.
A country with current account and capital account surpluses and increasing foreign exchange reserves normally experiences excessive money supply and high inflation. But while excessive money supply is a reality for China - the PBC now holds more than $2.6 trillion in foreign reserves - inflation has been quite moderate so far, thanks to the sterilisation policy.
The RRR is only one example of a textbook sterilisation instrument. Another is to sell off government bonds held by the central bank to take money out of circulation - again, just the opposite of what the Fed is now doing. Because China's government does not owe much debt to the public, the PBC sold out its holdings of government bonds in 2005. So it had to create something else to sell.
It created so-called "central bank bills", which commercial banks are supposed to buy voluntarily. When they do, the money they pay is also locked up in the PBC's accounts. To date, up to 5 per cent to 6 per cent of total liquidity has been returned to the central bank in this way.
Furthermore, the PBC uses unconventional instruments from time to time, such as credit ceilings or credit quotas imposed on commercial banks. This may result in extra reserves, which commercial banks cannot use to extend their credit lines. Credit quotas imposed early this year have left Chinese commercial banks with 2 per cent to 3 per cent of extra reserves.
Adding up the impact of the PBC's sterilisation efforts, about one quarter of China's total monetary base is illiquid. Thus, although China's total money supply seems excessive, with the M2-to-GDP ratio now at about 190 per cent, the real monetary base is actually much smaller than it appears. As a result, China's inflation, as well as asset prices, remain under control.
Fan Gang is professor of economics at Beijing University and the Chinese Academy of Social Sciences, director of China's National Economic Research Institute, secretary general of the China Reform Foundation and a former member of the monetary policy committee of the People's Bank of China
* Project Syndicate
Pakistan T20 series squad
Sarfraz Ahmed (captain), Fakhar Zaman, Ahmed Shahzad, Babar Azam, Shoaib Malik, Mohammed Hafeez, Imad Wasim, Shadab Khan, Mohammed Nawaz, Faheem Ashraf, Hasan Ali, Amir Yamin, Mohammed Amir (subject to fitness clearance), Rumman Raees, Usman Shinwari, Umar Amin
Uefa Nations League: How it works
The Uefa Nations League, introduced last year, has reached its final stage, to be played over five days in northern Portugal. The format of its closing tournament is compact, spread over two semi-finals, with the first, Portugal versus Switzerland in Porto on Wednesday evening, and the second, England against the Netherlands, in Guimaraes, on Thursday.
The winners of each semi will then meet at Porto’s Dragao stadium on Sunday, with the losing semi-finalists contesting a third-place play-off in Guimaraes earlier that day.
Qualifying for the final stage was via League A of the inaugural Nations League, in which the top 12 European countries according to Uefa's co-efficient seeding system were divided into four groups, the teams playing each other twice between September and November. Portugal, who finished above Italy and Poland, successfully bid to host the finals.
Need to know
The flights: Flydubai flies from Dubai to Kilimanjaro airport via Dar es Salaam from Dh1,619 return including taxes. The trip takes 8 hours.
The trek: Make sure that whatever tour company you select to climb Kilimanjaro, that it is a reputable one. The way to climb successfully would be with experienced guides and porters, from a company committed to quality, safety and an ethical approach to the mountain and its staff. Sonia Nazareth booked a VIP package through Safari Africa. The tour works out to $4,775 (Dh17,538) per person, based on a 4-person booking scheme, for 9 nights on the mountain (including one night before and after the trek at Arusha). The price includes all meals, a head guide, an assistant guide for every 2 trekkers, porters to carry the luggage, a cook and kitchen staff, a dining and mess tent, a sleeping tent set up for 2 persons, a chemical toilet and park entrance fees. The tiny ration of heated water provided for our bath in our makeshift private bathroom stall was the greatest luxury. A standard package, also based on a 4-person booking, works out to $3,050 (Dh11,202) per person.
When to go: You can climb Kili at any time of year, but the best months to ascend are January-February and September-October. Also good are July and August, if you’re tolerant of the colder weather that winter brings.
Do not underestimate the importance of kit. Even if you’re travelling at a relatively pleasant time, be geared up for the cold and the rain.
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What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
The specs
Engine: 4.0-litre V8 twin-turbocharged and three electric motors
Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
Killing of Qassem Suleimani
About Seez
Company name/date started: Seez, set up in September 2015 and the app was released in August 2017
Founder/CEO name(s): Tarek Kabrit, co-founder and chief executive, and Andrew Kabrit, co-founder and chief operating officer
Based in: Dubai, with operations also in Kuwait, Saudi Arabia and Lebanon
Sector: Search engine for car buying, selling and leasing
Size: (employees/revenue): 11; undisclosed
Stage of funding: $1.8 million in seed funding; followed by another $1.5m bridge round - in the process of closing Series A
Investors: Wamda Capital, B&Y and Phoenician Funds
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
How the bonus system works
The two riders are among several riders in the UAE to receive the top payment of £10,000 under the Thank You Fund of £16 million (Dh80m), which was announced in conjunction with Deliveroo's £8 billion (Dh40bn) stock market listing earlier this year.
The £10,000 (Dh50,000) payment is made to those riders who have completed the highest number of orders in each market.
There are also riders who will receive payments of £1,000 (Dh5,000) and £500 (Dh2,500).
All riders who have worked with Deliveroo for at least one year and completed 2,000 orders will receive £200 (Dh1,000), the company said when it announced the scheme.
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ESSENTIALS
The flights
Emirates flies direct from Dubai to Rio de Janeiro from Dh7,000 return including taxes. Avianca fliles from Rio to Cusco via Lima from $399 (Dhxx) return including taxes.
The trip
From US$1,830 per deluxe cabin, twin share, for the one-night Spirit of the Water itinerary and US$4,630 per deluxe cabin for the Peruvian Highlands itinerary, inclusive of meals, and beverages. Surcharges apply for some excursions.
How it works
1) The liquid nanoclay is a mixture of water and clay that aims to convert desert land to fertile ground
2) Instead of water draining straight through the sand, it apparently helps the soil retain water
3) One application is said to last five years
4) The cost of treatment per hectare (2.4 acres) of desert varies from $7,000 to $10,000 per hectare
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
Places to go for free coffee
- Cherish Cafe Dubai, Dubai Investment Park, are giving away free coffees all day.
- La Terrace, Four Points by Sheraton Bur Dubai, are serving their first 50 guests one coffee and four bite-sized cakes
- Wild & The Moon will be giving away a free espresso with every purchase on International Coffee Day
- Orange Wheels welcome parents are to sit, relax and enjoy goodies at ‘Café O’ along with a free coffee
Getting there
Flydubai flies direct from Dubai to Tbilisi from Dh1,025 return including taxes
Karwaan
Producer: Ronnie Screwvala
Director: Akarsh Khurana
Starring: Irrfan Khan, Dulquer Salmaan, Mithila Palkar
Rating: 4/5
The specs
Engine: 3.8-litre twin-turbo V8
Power: 611bhp
Torque: 620Nm
Transmission: seven-speed automatic
Price: upon application
On sale: now
