China's broad measurement of money supply, or M2, rose 16.9
percent year on year in 2006, a growth "basically" in line with the
economic development, the central bank said yesterday.
It was 0.1 percentage point higher than the year-on-year figure
by the end of November.
M1, the narrow measurement of money supply, rose 17.5 percent
year on year, the People's Bank of China (PBC) said on its
website.
M1 includes cash and institutional demand deposits, which
reflect fluidity of capital in public and enterprises' hands. M2,
which includes M1 and other types of deposits, reflects the overall
situation of money supply.
Despite the slight rise, "the growth rate is normal and
acceptable," said Li Yongsen, professor with the China Youth
University for Political Sciences.
The PBC is worried that excessive liquidity has been stoking the
country's investment boom and has raised commercial banks' reserve
requirements four times and interest rates twice since April
2006.
The stable money supply during the past months show that the
macroeconomic regulation measures are paying off, analysts
said.
China foreign exchange reserve, however, reached US$1.07
trillion by the end of December, up 30.2 percent over the previous
year, the PBC said. "This will exert heavy pressure on policy
makers this year," Li said.
Though the money supply's growth rate was not very high because
of its big scale, close attention should be paid to its structure,
he said.
There are signs to indicate that more money has flown into
investment rather than consumption, a scenario that can create
problems for the national economy, Li said.
The PBC said yuan-denominated lending rose 15.1 percent over the
previous year, up by 2.1 percentage points compared with the figure
at the end of 2005.
Banks extended 3.18 trillion yuan (US$407.7 billion) in new
loans in 2006, when the PBC's original target was 2.5 trillion yuan
(US$320.51 billion).
Analysts said the lending growth momentum showed there was still
a possibility for investment to rebound this year and create new
challenges for macroeconomic regulators.
Li, however, said he didn't see the need to raise interest rate
anytime soon. His view was shared by other economists, though they
said the policy makers could raise the rate by a small margin this
year.
(China Daily January 16, 2007)