Analysis on the process of interest-rates rising in Mainland China,2007

Firstly,interest-rates rise totally five times in 2007.It is obviously that the five times’ rising are not isolated from each other and research on their relationship becomes meaningful.
Secondly, the policy to increase interest-rates is not the only policy used by Central Bank in 2007. Some policies such as increasing Bank Reserve Requirement Ratio, are used frequently in 2007 as well. It must be useful to research these other policies as one part of the process.
Thirdly, it is important to put the process of interest-rates rising into a frame of the whole society. What things happened in 2007 result the interest-rates rise? What things happened in 2007 can be seen as signals to increase interest-rates? These factors cannot be ignored because they make the analysis of process into integrity.

Analysis 1:Process of recent interest-rates rise in 2007
Date Concept
15th Sep,2007 raise the one-year deposit interest rates by 27 basis pointsraise the one-year loan interest rates by 27 basis points
22th Aug,2007 raise the one-year deposit interest rates by 27 basis pointsraise the one-year loan interest rates by 18 basis points
20th July,2007 raise the one-year deposit interest rates by 27 basis pointsraise the one-year loan interest rates by 27 basis points
19th May,2007 raise the one-year deposit interest rates by 27 basis pointsraise the one-year loan interest rates by 18 basis points
18th March,2007 raise the one-year deposit interest rates by 27 basis pointsraise the one-year loan interest rates by 18 basis points
Statistic 1: interest-rates rise in 2007
The Statistic above show the process of recent interest-rates rise in 2007.It can be analyzed from three aspects.
First, the frequency of interest-rates rise is changing. From March to July, the interest-rates rise once every two months. But the rising process goes faster then. From July to September, interest-rates rise once a month. It is obvious that the policy to increase interest-rates is used more and more frequently.
Secondly, the dates to increase interest-rates are chosen. It is found that the interest-rates rise in weekend each time expect 22th August, which is Tuesday.
Thirdly, the deposit and loan interest rates rise synchronously each time although the rising amount is not absolutely same. During the first, second and fourth time, the deposit interest-rate rises 18 basis points, 9 basis points less than the loan interest-rates rise. During the third and fifth rising, both interest-rates rise by 27 basis points.

Analysis 2: portfolio-tightening control policy
It is mentioned before that the policy to increase interest-rates is not the only one used by Central Bank in 2007.The statistics below show two more.

Date Concept
26th Nov,2007 bank reserve requirement ratio rises to 13.5%
13th Oct,2007 bank reserve requirement ratio rises to 13%
25th Sep,2007 bank reserve requirement ratio rises to 12.5%
15th Aug,2007 bank reserve requirement ratio rises to 12%
5th July,2007 bank reserve requirement ratio rises to 11.5%
15th May,2007 bank reserve requirement ratio rises to 11%
16th April,2007 bank reserve requirement ratio rises to 10.5%
25th Feb,2007 bank reserve requirement ratio rises to 10%
15th Jan,2007 bank reserve requirement ratio rises to 9.5%
Statistic 2: bank reserve requirement ratio rise in 2007

Date Quantity(Yuan) Bound(Year) Interest-rate of bond
7th,Sep 151billion Three years 3.71%
17th,Aug 101billion Three years 3.69%
13th,July 101billion Three years 3.60%
11th,May 101billion Three years 3.22%
9th,Mar 101billion Three years 3.07%
Statistic 3: Central bank bills (Quantity larger than 100 billion yuan) issue in 2007

Though the two statistics above seem indifferent to the interest-rates rise process, it becomes meaningful when combined together. The whole process can be divided into five steps according to the date.
The first step
15th Jan Bank Reserve Requirement Ratio rise 50 basis points
25th Feb Bank Reserve Requirement Ratio rise 50 basis points
9th March Central Bank Bills issue 101 billion (yuan)
18th March one-year loan interest ratesone-year deposit interest rates rise 27 basis pointsrise 18 basis points
The second step
16th April Bank Reserve Requirement Ratio rise 50 basis points
11th May Central Bank Bills issue 101 billion (yuan)
15th May Bank Reserve Requirement Ratio rise 50 basis points
19th May one-year loan interest ratesone-year deposit interest rates rise 27 basis pointsrise 18 basis points
The third step
5th July Bank Reserve Requirement Ratio rise 50 basis points
13th July Central Bank Bills issue 101 billion (yuan)
20th July one-year loan interest ratesone-year deposit interest rates rise 27 basis pointsrise 27 basis points
The fourth step
15th Aug Bank Reserve Requirement Ratio rise 50 basis points
17th Aug Central Bank Bills issue 101 billion (yuan)
22th Aug one-year loan interest ratesone-year deposit interest rates rise 27 basis pointsrise 18 basis points
The fifth step
7th Sep Central Bank Bills issue 151 billion (yuan)
15th Sep one-year loan interest ratesone-year deposit interest rates rise 27 basis pointsrise 27 basis points
13th Oct Bank Reserve Requirement Ratio rise 50 basis points
26th Nov Bank Reserve Requirement Ratio rise 50 basis points

Analyzing the five steps above, some conclusion can be induced persuasively.
First, it is easy to find that the Central Bank sticks to the portfolio-tightening control policy during the process of increasing interest-rates. Expect the fifth time, Bank Reserve Requirement Ratio increases regularly before interest-rates rise in every step. It also can be found that Central Bank Bills issue in every step.
Secondly, the policy to raise interest-rates uses more and more frequently compared with policy to increase reserve requirement ratio. Situation comes similar in the first two steps that reserve requirement ratio rises twice before interest-rates rising. Then there is only one time ratio rising in both third and fourth step. Further, there is no ratio rising in the fifth step.
Thirdly, Interest-rates always rise one week later than the central bank bills(more than 100millions) issue in five steps without exception.

Analysis 3: Social affairs and signals during the process of interest-rates rise
It is found that the process of interest-rate rise is closely related to society situation, especially government affairs. These affairs can be considered as signals to increase interest-rates.
First, focus on the first interest-rates rise. It is announced on 18th March, three days before the Fifth Session of The Tenth National People’s Congress (5th March~15th March). In this congress, Premier Wen Jiabao of the State Council delivering the work report of the government on 5th March.
The economy on a fast track was not shadowed by "significant inflation" last year.
China's consumer price index (CPI), an important internationally-recognized index for inflation, last year went up 1.5 percent from 2005, 0.3 percentage points down from the growth in the previous year.
the Chinese government vows to further reduce urban unemployment to below 4.6 percent by creating at least nine million new jobs, while the overall increase of consumer prices shall be checked under 3 percent.
Although the work report of the government shows the confidence to keep CPI in a low level in 2007, situation changes sharply later. On 13th March, one week after the work report of government deliver, National Bureau of Statistics of China issue the CPI level in February.
In February, consumer price index (CPI) rose by 2.7 percent over the same period of the previous year…… Compared with January, CPI increased 1.0. Accumulated CPI from January to February increased 2.4 percent year-on-year.
It can be found that the CPI in February is much higher than the last year. More important, the data is extremely close to the 3%, the very level to be checked in the work report of government announced one week before.
So these two government affairs can be considered as signals to increase interest-rates, not only for date reason, but also the deeply relationship between CPI and interest-rates rise.
Secondly, there are important government affairs just before 20th July, the day of the third interest rates rising.
On 19th July, the spoke man of national Bureau of Statistics of China, held a meeting to issue the data of the economic activity of the first half year in China. It is announced that the CPI in June jumps 4.4% compared with last year. The average CPI of the first half year reaches to 3.2%, 1.9% higher than last year.
Again, the issue of CPI comes to be the signal to increase interest-rates rise.
Situation is similar before the fourth interest-rates rise. National Bureau of Statistics of China issue the data of CPI in July on 13th August, ten days before the fourth interest-rates rise.
In July, consumer price index rose by 5.6 percent over the same period of the previous year……Compared with June, CPI increased 0.9 percent.
Then, before the fifth interest-rates rise on 15th Sep, National Bureau of Statistics of China issues the data of CPI in August On 12th Sep.
In August, consumer price index (CPI) rose by 6.5 percent over the same period of the previous year…… Compared with July, CPI increased 1.2 percent.
According the analysis above, the signals to raise interest-rates in each time is clear and obvious. Here are two conclusions. First, the government announces important economic data before increasing interest-rates each time. Second, the signals are always related to CPI.

Reference:
①Bai Xu, Che Yuming, Zhang Xudong(2007-03-05 11:11:22). China sets 8% growth target for 2007.Retrieved from http://news.xinhuanet.com/english/2007-03/05/content_5802272.htm
②(2007.03.13 15:43:31). Consumer Price Index Increased Slightly in February. Retrieved from http://www.stats.gov.cn/was40/gjtjj_en_detail.jsp?searchword=CPI&channelid=9528&record=21
③(2007.08.13 13:36:04). Consumer Price Index (CPI) Kept Expanding in July. Retrieved from http://www.stats.gov.cn/was40/gjtjj_en_detail.jsp?searchword=CPI&channelid=9528&record=8
④ (2007.09.12 08:25:20.)CPI kept Jumping in August. Retrieved from http://www.stats.gov.cn/was40/gjtjj_en_detail.jsp?searchword=CPI&channelid=9528&record=6