New loans earmarked by Chinese banks in May were less than half of the figure of the same month in 2003, a strong evidence showing the central government's efforts to rein in loan growth and cool down the economy were paying off.

The People's Bank of China said in a report Thursday that banks doled out 113.2 billion yuan (US$13.6 billion) in Renminbi-denominated loans last month, as much as 140.4 billion yuan (US$16.9 billion) less than a year earlier.

The outstanding loans of all financial institutions, including foreign banks, were 18.25 trillion yuan (US$2.2 trillion) by last month-end, up an annualized 19 percent, but the increase was 1.4 percentage points lower month on month.

And the outstanding broad money supply M2, including money in circulation and all deposits, stood at 23.48 trillion yuan (US$2.8 trillion) at the end of May, up 17.5 percent year on year, slowing by 1.6 percentage points compared with a month ago.

"In general, the growth of money supply is tapering off," said the report.

"China's financial sector ran smoothly in May and the initial effects of macro-control were felt."

Earlier government figures pointed to the fact that Asia's second largest economy is gradually beginning to respond to repeated attempts by the government to tap the brakes on excess investment -- largely backed by bank lending.

Investment in construction and factory equipment and other fixed assets, contributing greatly to the country's "overheating economy", as claimed by many economists, slowed its pace -- down 8.8 percentage points from March to an annualized growth of 34.7 percent in April.

The Chinese government has set an economic growth target of 7 percent for this year, down from a sizzling 9.1 percent in 2003.

Friday's report also shows that China's currency remained stable, with an exchange rate of one US dollar for 8.2769 yuan at the end of May, neglecting the call of some developed countries for a yuan appreciation.

(Xinhua News Agency June 11, 2004)