The broad money supply, or M2, which covers cash in circulation and all deposits, rose 17.3 percent year-on-year in the month, the central bank said in a statement.

The growth rate was 1 percentage point higher than a month earlier and 3.7 percentage points higher compared with the same period of last year, it said.

Huang Yiping, a senior economist with Citigroup in Hong Kong, said August's M2 figures suggest that the central bank is slowly easing its tight credit policy.

Since mid-2003, China has implemented a slew of measures, including tight credit, to prevent the country's economy from overheating.

But many economists believe extending it over the long term would be harmful for sustainable economic growth.

"And now, the central bank is no longer in the tightening mode," Huang said.

But Wang Zhao, a senior researcher with the State Council Development Research Centre, said the high growth in August's money supply did not necessarily mean the central bank has relaxed credit controls.

"When comparing the figures with those in July, we can see the gap between the growth of M2 and outstanding local currency loans expanded," he said.

Outstanding renminbi loans rose 13.4 percent year-on-year to 18.8 trillion yuan (US$2.3 trillion) in August. The growth rate was 0.3 percentage points higher than a month earlier.

"This suggests the fast M2 growth is mainly because of the increased trade surplus," Wang said. The central bank has to use renminbi to buy hard currencies.

Last month, China chalked up one of the largest monthly trade surpluses of US$10 billion.

"The country's economy is facing the risk of a slowdown rather than inflation," Wang said.

The government should not have any further tightening measures for the rest of the year, he said.

China's gross domestic product grew 9.5 percent during the first half of this year, and it is likely to grow 9.2 percent for the whole year, according to an earlier forecast by the Asian Development Bank.

The central bank has set a target for broad money supply growth of about 15 percent for 2005.

Wang said an M2 growth of between 16 percent and 18 percent was acceptable.

Last year's M2 growth was 14.1 percent, well below the central bank's target of about 17 percent.

(China Daily September 14, 2005)