China's monetary growth slowed considerably last month,
increasing confidence that macroeconomic measures put in place this
year may be effective in preventing the economy from
overheating.
Broad money supply M2, which covers cash in circulation and all
deposits, rose 17.5 percent year-on-year in the first five months
of the year, to 23.5 trillion yuan (US$2.8 trillion) at the end of
May, down 1.6 percentage points from one month earlier, the
(PBOC) said Thursday.
Loan growth also slowed. Outstanding renminbi loans grew 18.6
percent year-on-year, to 17.1 trillion yuan (US$2.1 trillion) at
the end of May, down 1.3 percentage points from April. Last month's
new loans dropped more than 50 percent from a year earlier to 113.2
billion yuan (US$13.6 billion).
"That means macroeconomic measures, or at least the efforts to
contain loan increases, have had some noticeable effect," said Wang
Yuanhong, a senior analyst with the State Information Center.
The slowdown in monetary growth exceeded the central bank's
expectations. In its first-quarter monetary policy report released
last month, the PBOC said monetary and credit growth would remain
strong through June and only begin to subside in the third quarter
when the effects of the bank's earlier tightening moves become
evident.
Industrial output growth also slowed last month, rising 17.5
percent from the same period last year. This indicates a 1.6
percentage point drop in growth rate from April, according to the
National Bureau of Statistics.
Wang said a more important number to watch is growth in fixed
investment, which is the prime reason for concern that the economy
is overheated in some sectors.
"But given the monetary and credit numbers, the pace (of
investment growth) should also be coming down," he said.
Fixed investment numbers for May will be released later this
month.
China's fixed investment soared 42.8 percent in the first four
months of the year, following even faster growth last year, as the
demand for such industrial materials as steel, cement and aluminum,
and goods like new houses and cars remained strong.
A growing list of industries have been diagnosed with signs of
excessive investment, with steel, cement and aluminum being the
most obvious.
The investment frenzy pushed up growth in bank lending. A huge
part of investment in the overheated sectors--as much as 60
percent--is estimated to have come from bank loans.
The PBOC has tried to bring down investment and lending numbers.
Its two increases in bank reserve requirements took effect in
April, and it raised rates on central bank lending. Both moves were
designed to reduce the banks' lending capacities.
The China Banking
Regulatory Commission has also announced broad inspections into
bank loans for fixed investment projects.
Many watchers expressed doubt as to the effectiveness of those
moves as loans remained on the fast track in the early months of
this year, and most see an interest rate rise as the central bank's
last resort. But the loan figures for May are expected to result in
some adjustment to people's views.
The slowdown in monetary growth was not only a result of slower
loan increases, but partly due to a downtrend in savings growth,
Wang noted.
Savings growth dipped 4 percentage points in May from a year
earlier to 17.9 percent, the PBOC said without elaborating further.
The bank attributed April's slowdown in savings growth to increased
issuance of Treasury bonds and new mutual funds.
But uncertainty remains about the nation's monetary growth for
the remainder of the year, analysts said.
Despite high rates of around 20 percent in the first few months
of this year, the PBOC said in its first-quarter monetary policy
report that a 17 percent M2 growth target for the entire year was
still achievable.
That would require annualized M2 growth to stay below 17 percent
for the remainder of the year. But if monthly adjusted growth
continues at the pace recorded in May, the full-year growth would
be only 10 percent, a slowdown that analysts said would be too
abrupt.
The PBOC did not give the monthly-adjusted growth rate of M2 for
May, but only said it will be equivalent to a 10 percent full-year
rate after deducting seasonal factors.
(China Daily June 11, 2004)