April 18, 2024

Suntech Power on Verge of Takeover by Chinese Holding Company

A woman answering the phone in the executive offices of the group headquarters of Wuxi Guolian, the holding company, said that a deal had already been reached for the acquisition of Suntech, which is traded on the New York Stock Exchange. The woman declined to identify herself.

Rory Macpherson, Suntech’s director of investor relations, declined to address a question about Wuxi Guolian, saying by e-mail only, “It’s our policy not to comment on market rumors.”

Suntech has been driven to the financial brink by an obligation to pay more than $541 million to holders of convertible bonds at the end of this week. It stopped releasing financial reports last year after disclosing in July that it had invested in 530 million euros, or $690 million, worth of German bonds that might prove fraudulent. The company’s cash reserves have been dwindling, analysts have said, and Chinese state-owned banks have been reluctant in recent months to lend more.

Suntech said it reached a deal with three-fifths of the bondholders early this week to give it a two-month reprieve to find an answer to its financial troubles. But some bondholders have questioned the announcement, saying that they were not even approached about a reprieve. Suntech’s convertible bonds have been trading this week for as little as 30 cents on the dollar. Its shares closed at $1.09 on Tuesday, down 5.2 percent for the day and down 63.2 percent in the last 12 months.

It was unclear late Wednesday in Asia what terms might be offered to Suntech’s bondholders or long-suffering shareholders. The shareholders might have to pass judgment on a merger, particularly if a merger were to take place without an initial bankruptcy filing to erase debt.

Suntech announced Tuesday that it was closing its factory in Goodyear, Ariz., at the cost of 43 jobs there. The factory put aluminum frames and electrical junction boxes on solar cells imported from China so that the fully assembled solar panels would qualify for “Buy American” incentives.

The collapse of Suntech is a milestone in the precipitous decline of China’s green energy industry in the last four years. More than any other country, China had bet heavily on renewable energy as the answer to its related problems of severe air pollution and heavy dependence on energy imports from politically unstable countries in the Middle East and Africa.

China is also exposed to global warming on its low-lying, densely populated coastline, which the Energy Department in Washington has estimated to have more people vulnerable to displacement from rising sea levels than anywhere else on earth.

But China’s approach to renewable energy has proved ruinous, financially and in terms of trade relations with the United States and the European Union.

State-owned banks have provided $18 billion in loans on easy terms to Chinese solar panel manufacturers, financing an increase of more than tenfold in production capacity from 2008 to 2012. This set off a 75 percent drop in panel prices during that period, which resulted in losses to Chinese companies of as much as $1 for every $3 in sales last year.

The huge loans and extremely low prices prompted SolarWorld, a German company, and its American subsidiary to file antidumping and antisubsidy cases in the United States and the European Union against solar panel exports from China. The United States has responded with tariffs of about 40 percent on solar cells and solar panels from China, and the European Union is concluding its deliberations and is expected to deliver an initial verdict this summer.

Yotam Ariel, the managing director of Bennu Solar, a consulting firm in Shanghai, said that the closing of the Arizona factory was “yet another indication of a tough struggle.”

This article has been revised to reflect the following correction:

Correction: March 13, 2013

An earlier version of this article referred incorrectly to a transfer of Zhu Kejiang, Wuxi’s longtime mayor. He was sent this winter to be municipal party secretary in another city, not another province.

Article source: http://www.nytimes.com/2013/03/14/business/energy-environment/suntech-power-on-financial-brink.html?partner=rss&emc=rss

DealBook: Hakon Invest to Buy Stake in Nordic Retailer for $3.1 Billion

An ICA Maxi grocery store in Stockholm. Hakon Invest will acquire a 60 percent stake in ICA.Dean C.K. Cox for The New York TimesAn ICA Maxi grocery store in Stockholm. Hakon Invest will acquire a 60 percent stake in ICA.

LONDON – The Swedish investment company Hakon Invest agreed on Monday to buy the remaining stake in the Nordic retailer ICA it did not already own for 20 billion Swedish kronor, or $3.1 billion.

Under the terms of the deal, Hakon Invest will acquire a 60 percent stake in ICA, which operates supermarkets in Sweden, Norway and the Baltic countries, from the Dutch retailer Ahold, which owns the Giant and Stop Shop grocery-store chains in the United States.

Ahold announced in September that it was considering the sale of its holding in ICA to focus on businesses in which it retained full control. The Dutch retailer and Hakon Invest had shared equal control over the management of ICA, which runs more than 2,000 stores across the Nordic region.

“The deal strengthens the conditions for continued satisfactory and stable dividends to our shareholders,” Hakon Invest’s chairman, Hannu Ryopponen, said in a statement.

Hakon Invest will use existing cash reserves and bank financing to pay for the deal, according to a company statement. After completing the deal, it said it would repay the debt financing through a share issuance of 5 billion kronor to existing investors.

Shares in Ahold rose 4.3 percent in morning trading in Amsterdam on Monday.

Hakon Invest’s stock price climbed almost 17 percent in early morning trading in Stockholm on Monday. The company plans to change its name to ICA Gruppen after completing the deal.

The companies added that they had agreed to pay themselves a dividend totaling 2 billion kronor from ICA, of which Ahold would receive 1.2 billion kronor.

The deal for ICA is expected to close by the end of the second quarter of this year.

Article source: http://dealbook.nytimes.com/2013/02/11/hakon-invest-to-buy-stake-in-nordic-retailer-for-3-1-billion/?partner=rss&emc=rss

DealBook: Swatch to Buy Watch and Jewelry Business of Harry Winston

2:31 p.m. | Updated

An emerald and diamond necklace designed by Harry Winston in 1956 was recently auctioned by Christie's.Mark Ralston/Agence France-Presse — Getty ImagesAn emerald and diamond necklace designed by Harry Winston in 1956 was recently auctioned by Christie’s.

The Swatch Group agreed Monday to make its largest acquisition to date, taking over the watch and jewelry business of Harry Winston, which plans to shift its focus to its diamond mining activities.

Swatch, the world’s largest maker of watches, said it would pay $750 million in cash for Harry Winston and assume $250 million of debt. The publicly traded Harry Winston Diamond Corporation, based in Toronto, will be renamed Dominion Diamond after the takeover.

For Swatch, the purchase of Harry Winston expands its vast portfolio of watches by adding a prominent jewelry brand immortalized decades ago by Carol Channing on Broadway and Marilyn Monroe in Hollywood. Harry Winston jewels still regularly adorn actresses on the red carpet at awards shows.

Swatch owns not only the brand that makes colorful plastic watches but also upscale names that include Omega, Breguet and Blancpain. Swatch also controls the bulk of the sector’s production of watch movements after buying several makers of components.

Swatch is paying about 23 times estimated earnings before interest, tax, depreciation and amortization of Harry Winston, said René Weber, a watch analyst at Bank Vontobel in Zurich, who welcomed the takeover. He said that the price was high but justified, considering that Swatch has about 2 billion Swiss francs ($2.2 billion) in cash reserves.

The purchase of Harry Winston also comes after the four-year partnership by Swatch and Tiffany, another luxury jeweler, ended acrimoniously in 2011. The other two luxury groups that dominate the watch sector — Richemont and LVMH Moët Hennessy Louis Vuitton — already have a strong presence in jewelry. Richemont owns Cartier while LVMH acquired Bulgari, the Italian jeweler, nearly two years ago.

‘‘It is a great fit,’’ Mr. Weber said of the new purchase, adding a strong jewelry brand that ‘‘fills the gap in the portfolio’’ at Swatch, particularly following the unsuccessful alliance with Tiffany.

Swatch, based in Biel, Switzerland, is listed on the SIX Swiss exchange in Zurich, with its shares rising 4.1 percent to 512.5 Swiss francs on Monday, as investors applauded the deal.

Still, Swatch’s management and about a third of its equity remain in the hands of the family of Nicolas Hayek, who founded the company and helped revive the whole Swiss watch industry in the 1980s, in the face of stiff Japanese competition, by introducing the inexpensive and highly successful Swatch plastic watches. Mr. Hayek died in 2010.

Nayla Hayek, his daughter and chairwoman of the company, said in a statement on Monday that the takeover of Harry Winston, which has 535 employees, ‘‘brilliantly complements the prestige segment’’ of her company.

‘‘Diamonds are still a girl’s best friend,’’ she added, echoing the lyrics from the stage and film versions of ‘‘Gentlemen Prefer Blondes,’’ a song that made Harry Winston a household name.

Robert Gannicott, chairman and chief executive of the Harry Winston Diamond Corporation, said the sale ‘‘will leave us well equipped to realize upstream opportunities in an environment where cash has become a strategic resource while preserving and expanding our relationship with the downstream diamond business.’’

In November, the company acquired the Ekati diamond mine in Canada from BHP Billiton. It has also maintained a 40 percent stake in the Diavik diamond mine, also in Canada, which it has developed with Rio Tinto. Rio Tinto, however, indicated last year that it was likely to divest its diamond assets.

Article source: http://dealbook.nytimes.com/2013/01/14/swatch-to-buy-watch-and-jewelry-business-of-harry-winston-for-750-million/?partner=rss&emc=rss

Bits Blog: Apple Becomes the Most Valuable Public Company Ever, With an Asterisk

Noah Berger/Bloomberg News

8:53 p.m. | Updated

Apple, a company that nearly filed for bankruptcy just 16 years ago, passed a very different sort of milestone on Monday, when a bump in its share price made it the most highly valued public company ever.

Apple already boasted the largest market value of any public company, a title it has held since toppling Exxon Mobil from that spot. But Microsoft still held onto the record for the biggest market capitalization ever, $616.34 billion, which it set at the close of trading on Dec. 27, 1999, according to Howard Silverblatt, an analyst at S. P. Dow Jones Indexes.

Apple blew past that mark when its stock surged 2.6 percent on Monday to close at $665.15, giving it a market value of $623.52 billion.

The short-term explanation for the rise in its stock is the investor euphoria that often accompanies new product announcements from Apple — in this case, the expected introduction of a new iPhone in mid-September that could give a jolt to sales.

But the longer-term story behind the stock price is a corporate turnaround with few, if any, equals. The Apple that Steven P. Jobs arrived at when he rejoined the company in 1997 was, in his own words, in a precarious state, with a bloated inventory, a sprawling line of mediocre products and dwindling cash reserves.

Apple’s situation was so bad that Michael S. Dell, chief executive of the computer maker Dell, told an audience at a conference that, if he was running Apple, he would “shut it down and give the money back to shareholders.”

The Apple that Mr. Jobs left behind when he died of cancer last October had reinvented itself multiple times under his watch, first with the iPod, then the iPhone and then the iPad. At an industry conference in 2010, Mr. Jobs described seeing Apple pass the market value of Microsoft, its longtime rival and long the most highly valued of technology companies, as “surreal.”

If Mr. Jobs were still alive, he could add up the values of Microsoft, Intel and Google and still have more than $13 billion of daylight between that figure and Apple’s market capitalization, which is a company’s stock price times its outstanding share count.

“It has been an absolutely remarkable transformation,” said Charlie Wolf, an analyst at Needham Company.

Another analyst, Horace Dediu of Asymco, noted that Microsoft’s 1999 market value was still far higher than Apple’s when adjusted for inflation. The Microsoft of late 1999 would be worth $850 billion in today’s dollars. The Microsoft of August 2012 is worth $258 billion.

By Mr. Silverblatt’s calculations, Apple needs to close at $910 to beat Microsoft’s inflation-adjusted market value.

It is worth noting that Microsoft achieved its pinnacle back when high-flying technology and Internet stocks had yet to be humbled by the bursting of the Internet bubble. Microsoft never regained the favor of investors after that happened, even as it delivered strong growth in revenue and profits. Investors have become increasingly concerned about the growth prospects of companies dependent on sales in the traditional computer business.

Apple, however, has seen great leaps in its value during the last four years, a period of great economic uncertainty.

In 2006, after Apple passed the market value of Dell, Mr. Jobs couldn’t resist pointing out the flaws in Mr. Dell’s assessment of Apple. “Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today,” Mr. Jobs wrote in a note to Apple employees.

On Monday, the market value of Dell was just under $22 billion.

Article source: http://bits.blogs.nytimes.com/2012/08/20/apple-becomes-the-most-valuable-public-company-ever-with-an-asterisk/?partner=rss&emc=rss

G.M. Earnings Climb 89%

DETROIT — General Motors said on Thursday that it earned $2.5 billion in the second quarter, a healthy 89 percent increase over its results in the period a year earlier.

G.M., the nation’s largest automaker, reported that revenue for the period increased 19 percent, to $39.4 billion.

The results were driven by strong sales in G.M.’s core North American market, where it earned $2.2 billion, up from $1.6 billion in the second quarter of 2010.

“G.M.’s investments in fuel economy, design and quality are paying off around the world as our global market share growth and financial results bear out,” Daniel F. Akerson, G.M.’s chief executive, said in a statement.

The company, which posted profit in all of its automotive regions, said it earned $100 million in its European unit, which has been struggling with higher costs and sluggish sales. The results included a $100 million restructuring cost, G.M. said.

In Asia, G.M. reported income of $600 million, while in South America it posted income of $100 million.

The results were higher than analysts had expected, given the slow rate of industry sales in the American market.

“It’s a solid quarter,” said Daniel Ammann, G.M.’s chief financial officer. “It’s on plan. We had good revenue growth and good earnings growth.”

G.M. ended the quarter with cash reserves and available credit of $39.7 billion, compared with $33.6 billion in the period a year earlier.

The company produced 2.4 million vehicles in the second quarter, compared with 2.25 million in year-earlier period. Its global market share was 12.2 percent, up from 11.6 percent in the second quarter of 2010.

“We were able to get prices up and incentives down, and that really highlighted the value of the product,” Mr. Ammann said. “Our goal is to drive long-term, sustained performance.”

The company said it expected income in the second half of the year to be “modestly lower” than in the first half, because of market conditions and the overall industry outlook.

For the first six months of the year, G.M.’s net income was $5.4 billion, compared with $2.2 billion in the first half of 2010.

“Our progress has been steady, and we’re preparing to launch more new products this year, including the Chevrolet Sonic in North America, the Opel Zafira in Europe and the Baojun 630 in China to keep the momentum going,” he said.

New products are a major driver of G.M.’s results, and the company hopes to capitalize on its momentum with two new Cadillac cars announced Thursday. In 2012, G.M. also plans to begin building a large sedan, the XTS, in Canada and a rear-wheel-drive compact car, tentatively called the ATS, at a plant in Lansing, Mich., said Mark Reuss, the president of G.M. in North America, at an industry conference in northern Michigan.

Both cars will be in segments that are dominated by foreign nameplates, but Mr. Reuss said he was confident that G.M. could make headway with a “uniquely American solution” for luxury car shoppers.

“We have extensively and exhaustively studied the competitive segment, and we have benchmarked the best,” he told conference attendees.

Mr. Reuss also noted that Chevrolet is in the midst of renewing and expanding its car lineup with a new minicar, the Spark, coming next year and revamped versions of the Malibu and Impala sedans on the way.

As a result, Chevrolet will have entries in all five passenger-car segments for the first time in its 100-year history, he said, with none older than the Cruze compact, which was introduced a year ago and has produced big sales numbers. G.M. plans to offer a diesel-powered variant of the Cruze in the United States in 2013.

The new cars are critical to G.M.’s future; Mr. Reuss said cars are outselling trucks at G.M. for the first time in his career.

Nick Bunkley contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=be7c665156b0aae2230bff5115a51c37

DealBook: Lenovo to Buy German Electronics Firm Medion

Lenovo, the Chinese computer maker that bought IBM’s PC division six years ago, said on Wednesday that it planned to take control of the German consumer electronics manufacturer Medion in a deal valuing the company at $909 million.

Lenovo said the acquisition would double its share of the German PC market, where it would become the third-largest player, after Acer and Hewlett-Packard. The deal, expected to close in the third quarter, would be the first time a Chinese company has bought a well-known German brand like Medion, which supplies computers and other devices to the popular discount chain Aldi.

Yang Yuanqing, head of Lenovo, said the company planned to combine “this ‘front end’ with Lenovo’s ‘back end’ manufacturing capability and supply chain” in a push further into Europe.

The move will give Lenovo 14 percent of the German PC market and about half that share for the PC market in Western Europe, the company said. It bears echoes of Lenovo’s landmark 2005 deal in America, when it bought the ThinkPad PC division of IBM for $1.75 billion.

Gerd Brachmann, chairman of Medion, has agreed to sell two-thirds of his 60 percent stake in the company. He will be paid in cash for 80 percent of the shares he is selling, and receive 20 percent in Lenovo shares, terms that are set to give him about 1 percent of Lenovo, the world’s fourth-largest PC maker after H.P., Dell and Acer.

Both the Lenovo and Medion boards have approved the deal, and Lenovo said the acquisition was contingent on an additional 15 percent of Medion shares being tendered by investors other than Mr. Brachmann. The transaction, subject to regulatory approval, will be financed with Lenovo’s cash reserves.

After the announcement, shares of Medion, which closed on Tuesday at 11.05 euros, jumped 2.04 euros, or 18.5 percent, to 13.09 euros in early trading on Wednesday in Frankfurt. At 13 euros a share, the Lenovo offer is 29 percent above the average closing price for Medion shares over the last 30 days.

The largest shareholder in Lenovo’s parent company, Legend Holdings, is the Chinese Academy of Sciences, a government research institute. An employee group and the conglomerate China Oceanwide also hold major stakes.

Founded in 1983 by Mr. Brachmann, Medion is based in Essen and employs about 990 people. It reported net income of 4 million euros for the first quarter, up from 3 million euros for the same period a year before, but sales declined to 371 million euros in the first quarter this year from 411 million euros in the period a year earlier.

Lenovo hired Barclays Capital as its financial adviser. The company said last week that it had generated record sales of $21.6 billion for the year ended March 31.

Article source: http://feeds.nytimes.com/click.phdo?i=d73534559ee80e1c09f298ce0ca1c7f4

G.M.’s Earnings Triple in First Quarter

Earnings were higher than expected, and included $1.9 billion in one-time gains for the sale of G.M.’s ownership interests in the Delphi parts maker and the Ally Financial credit company. G.M. also took charges of $500 million related to its international operations.

Earnings were $1.77 a share, compared with 55 cents in the quarter a year ago. Analysts surveyed by Thomson Reuters had expected earnings of $1.73 a share.

Without the charges and gains, the automaker earned about $1.7 billion, its best quarterly performance in more than a decade. In the quarter a year ago, G.M. reported a profit of $865 million.

“We are on plan,” Daniel F. Akerson, G.M.’s chairman and chief executive, said in a statement. “G.M. has delivered five consecutive profitable quarters, thanks to strong customer demand for our new fuel-efficient vehicles and a competitive cost structure that allows us to leverage our strong brands around the world and focus on driving profitable automotive growth.”

G.M. said revenue in the quarter increased 15 percent to $36.2 billion , and it ended the quarter with $30.6 billion in cash reserves. Analysts surveyed by Thomson Reuters had expected revenue of $35.59 billion.

The company’s core North American operations, once a huge trouble spot, reported earnings before interest and taxes of $2.9 billion, compared to $1.2 billion a year ago.

It also reported pretax profits of $100 million in South America, and $500 million for its overseas unit in Asia. The company’s lone regional loss was recorded in Europe, where G.M. said it had a $400 million pretax loss.

The strong first-quarter earnings resulted from steadily improving vehicle sales in the United States, and a considerably lower debt load since G.M. emerged from its government-sponsored bankruptcy in 2009.

The earnings follow a $4.7 billion profit in 2010, the first profitable year for G.M., a Detroit automaker, since 2004.

G.M.’s sales in the United States increased 25 percent in the first four months of this year compared to the same period in 2010. The overall industry, by comparison, went up about 20 percent. But the company is still spending more than its rivals on incentives. In April, G.M. spent about $3,000 in incentives on each car and truck it sold, versus about $2,100 for the industry average, according to Edmunds.com   

The company has benefited from a better lineup of fuel-efficient cars and crossover vehicles in an environment where the national average for gasoline is almost $4 a gallon.

The new Chevrolet Cruze, for example, has been G.M.’s most successful entry in the compact car segment in years. G.M. has also transitioned away from large, seven-passenger S.U.V.’s to smaller crossovers like the Chevrolet Equinox.

Industry analysts said that G.M. gained sales early in the year with higher incentives but has since backed off costly rebates. “For G.M., the first quarter was good, but the second quarter should be better,” said Jessica Caldwell, an analyst with the auto-research Web site Edmunds.com. “G.M. has already dropped incentive spending below $1,000 a car for some models.”

The automaker has also reduced excess capacity in its assembly plants, and cut tens of thousands of jobs through buyouts and early retirements. Its break-even point in the United States has been lowered to about two million vehicles, a sales goal that it should achieve easily this year.

With Japanese automakers struggling to maintain inventory levels in the aftermath of the March 11 earthquake, G.M. is in position to make further gains in the American market. Its share in April was about 20 percent, more than a percentage point higher than the period a year earlier.

Automakers have reported a recent surge in sales, in part because of new improved models of small, fuel-efficient or alternative fuel vehicles. Earlier this week, automakers reported that car sales in April were up 18 percent from the month a year ago as the demand for compact and subcompact cars kept the industry on track for a slow but steady recovery from recession-era sales levels.

G.M.’s American sales rose 27 percent in April. Chrysler said its sales increased 23 percent and Ford reported a 16 percent increase.

The first quarter performance exceeded Ford’s $2.55 billion profit in the period. But G.M. is a much healthier and better positioned company than it has been for at least a decade. And given the quake-related troubles at Toyota, G.M. could retake the crown as the world’s largest automaker this year.

G.M.’s future performance will probably determine how soon the Treasury Department will sell more of its nearly 26 percent stake.

For several weeks the company’s stock has been below the $33-a-share initial public offering price, although on Wednesday it closed at $33.04. The Treasury Department will be permitted to sell some or all of its remaining 500 million G.M. shares beginning on May 22 — the day its lockup period expires after last fall’s public offering.

Going forward, Mr. Akerson said, G.M. was concentrating on cutting costs in its product development processes, primarily by reducing complexity in engineering and manufacturing new vehicles. “I won’t say the fruit is hanging low, but it’s within a fair reach for us,” he said during a conference call with analysts.

He also characterized this summer’s contract talks with the United Auto Workers as “critically important” to staying competitive with American factories operated by foreign automakers. He said that G.M., as well as the U.A.W. union, want to make “these negotiations a plus and not a negative.”

Article source: http://feeds.nytimes.com/click.phdo?i=8b862e3270be16001898f6e00a8092c8

DealBook: Teva to Buy Cephalon for $6.8 Billion

Teva Pharmaceutical Industries said on Monday that it had agreed to buy the biopharmaceutical company Cephalon for $6.8 billion, a deal unanimously approved by the boards of the two companies.

The announcement comes just weeks after Cephalon rejected a $5.7 billion takeover bid from Valeant Pharmaceuticals, calling it too low and opportunistic.

Teva’s cash bid of $81.50 a share is 39 above Cephalon’s share price on March 29, the last trading day before Valeant’s unsolicited offer was announced, and 6 percent above the closing price on Friday.

Teva expects $500 million in annual cost savings from the deal, which it says will be accretive to earnings immediately upon closing. The acquisition will expand Teva’s presence in areas like oncology and the treatment of respiratory diseases, as well as pain management.

The combined company is expected to have $7 billion in sales of branded drugs, as it works to bring to market 30 compounds already in late-stage trials. Cephalon had $2.8 billion in revenue last year.

“Our significantly broader portfolio will permit marketing and sales synergies and enhance profitability,” said Shlomo Yanai, head of Teva, the world’s largest generic drug maker.

Teva bought the German generic drugmaker Ratiopharm last summer for 3.6 billion euros, then worth about $5 billion, as VEM Vermögensverwaltung sold off assets after the suicide of its founder, Adolf Merckle. Mr. Merckle killed himself after losing hundreds of millions of euros in Porsche’s short squeeze on Volkswagen shares in 2008.

Cephalon had bought the Swiss generic drugmaker Mepha earlier in the same liquidation of VEM units, and the deal announced Monday brings the two units once again under the same roof.

Teva, headquartered in Israel, will finance the Cephalon deal using cash reserves, credit lines and bond issuance, the company said. It hired Credit Suisse as its financial adviser and Kirkland Ellis as legal counsel.

Cephalon, based in Frazer, Pa., was advised by Deutsche Bank and Bank of America Merrill Lynch and the law firm Skadden, Arps, Slate, Meagher Flom.

Article source: http://dealbook.nytimes.com/2011/05/02/teva-to-buy-cephalon-for-6-8-billion/?partner=rss&emc=rss

China Orders Banks to Raise Reserves to Combat Inflation

SHANGHAI — In China’s latest move to fight inflation, the government said Sunday that Chinese banks would be required to set aside larger cash reserves.

China’s central bank said that effective Monday, large banks here would have to set aside 20.5 percent of their cash, an increase of half a percentage point. The move essentially reduces the amount of cash available for loans.

It was the fourth time this year that the Central Bank has raised the required reserve ratio.

The decision came just days after China said inflation rose at its fastest pace in more than two and a half years. In March, the consumer price index climbed to 5.4 percent, even though economic growth moderated slightly.

China is worried that some of the highest levels of inflation in years could disrupt a booming economy that is being fueled in part by heavy bank lending.

Food prices have been soaring in China, but wages, housing prices and raw material prices are also rising.

On Saturday, Zhou Xiaochuan, the governor of China’s central bank, said that government tightening — efforts to slow the economy and restrict the banking system — would continue for “some time.”

Patrick Chovanec, who teaches at Tsinghua University in Beijing, said high inflation is the result of the government’s stimulus packages, which began in early 2009, when economists here worried that the global financial crisis would undermine China’s boom.

“China has achieved very high GDP numbers by boosting the money supply. China had its own huge version of quantitative easing,” he said referring to the Federal Reserve’s effort in the United States to inject more money into the economy to bolster growth. “They had a monetary stimulus.”

Before Friday’s economic data reports showing that the Chinese economy grew by 9.7 percent in the first quarter of this year and that inflation reached its highest level in years, many economists were expecting that the government’s efforts to slow the economy were coming to an end.

But a number of economists now expect the government to raise interest rates and place more restrictions on lending.

Chinese Prime Minister Wen Jiabao has made clear that fighting inflation is the government’s No. 1 economic priority this year.

Article source: http://www.nytimes.com/2011/04/18/business/global/18yuan.html?partner=rss&emc=rss