Broad money M2, which covers cash in circulation and all deposits, rose 16.2 percent year-on-year to 23.8 trillion yuan (US$2.8 trillion) at the end of last month, the People's Bank of China, the nation's central bank, said Tuesday. The pace was 4.7 percentage points lower than a year earlier, and down 1.3 percentage points from the previous month.

Outstanding renminbi loans totaled 17 trillion yuan (US$2 trillion) at the end of June, up 16.3 percent year-on-year and an impressive 6.8 percentage points slower than a year earlier. It was down 2.3 percentage points from the end of May.

Fixed investment and consumer price figures, also major factors prompting worries about an overheating economy, are expected to ease notably in June, further reducing the possibility of a much-anticipated interest rate rise, analysts said Tuesday. The figures are due out later this week.

"The results of financial management are evident," the central bank said in a press release. "Overall, the adjustments in the aggregate scale of money and credit were appropriate and financial performance was healthy and stable."

The pronounced slowdown in money supply and credit growth caught many analysts by surprise. Some have been concerned that the authorities might have to resort to an interest rate rise later this year should earlier monetary policy actions and administrative measures -- mainly three increases in bank reserve requirements and tight land and price controls -- fail to harness the growth in new loans and fixed investment.

"We did not expect it to come down in just two months," said Wang Yuanhong, a senior analyst at the State Information Center. "That means macroeconomic management has yielded some really obvious results."

"Fixed investment should be within 20 percent for June, as both M2 and loans were down," Wang said.

Fixed investment surged 42.8 percent in the first four months of the year, following even faster growth last year. The pace was particularly fast in certain red-hot sectors like steel, cement and aluminum.

But following the monetary and administrative measures, the growth rate slipped to a surprisingly low 18.3 percent in May.

"The need to raise interest rates is even weaker now," Wang said.

The central bank has been saying recently that it needs more time to judge the effect of earlier monetary policy actions before it takes further steps, such as adjusting interest rates.

The unexpected slowdown in major indicators has now prompted worries about the possibility of an abrupt economic slowdown. The authorities want to bring growth down from the current levels, where many resources such as oil have been under pressure, but needs to keep it above 7 percent to generate jobs for laid-off workers.

"We need to prevent such a downward trend from strengthening in the coming months," Wang said.

But robust demand from abroad, as indicated in the June figures, should help prop up economic growth as loans and fixed investment downshift, according to Liang Hong, China economist for Goldman Sachs (Asia).

China's exports grew 46.5 percent year-on-year, up from 32.8 percent in May, while imports grew 50.5 percent, compared with 35.3 percent in May.

China's foreign exchange reserves rose by 35.8 percent year-on-year to US$470 billion at the end of June, the central bank said Tuesday. Foreign exchange reserve increases in the first half of the year totaled US$67.3 billion, US$7.2 billion more than the same period last year.

Foreign direct investment (FDI) to China maintained stable growth in the first half of the year, a sign that measures to cool overheated parts of the economy will not stem the flow of overseas cash.

Actual FDI rose 12.0 percent to US$33.9 billion in the first six months, the Ministry of Commerce reported Tuesday.

Contracted FDI, which measures future trends, was up 42.7 percent year-on-year to US$72.7 billion in the first half.

The ministry did not report the June figure for actual foreign investment, but estimates put it at US$7.9 billion, up 14.0 percent from a year earlier.

Jin Bosheng, director of the FDI department of the Chinese Academy of International Trade and Economic Cooperation, said the number showed foreign investors remained buoyant on the prospects of China's growing economy and were not frightened by steps to cool some industries.

"Businesses are still confident that the government is able to manage overheating," Jin said.

The monthly actual FDI to China was up 15.5 percent in May and 17.2 percent in April.

Despite its policy of curbing domestic investment in the overheated steel, cement and aluminum industries the government welcomes foreign investment in these sectors, which it says has been at a reasonable level.

In June, US auto giant General Motors said it would invest US$3 billion to double capacity in China by 2007. Germany's Volkswagen AG said it would spend 740 million Euros (US$900 million) on two new engine plants and one new car factory.

Wang Xiaoguang, an expert at the Academy of Macro-economic Research under the State Development and Reform Commission, said worries about overheating in some sectors still made investors cautious about investing in China.

But he believed the measures to help keep the economy growing at a sustainable level will not have an adverse impact on foreign investment.

"Foreign investors will change their wait-and-see attitude and be aware that sustainable growth of China's economy will benefit all," he said.

China's Commerce Ministry said recently it expected foreign investment this year to roughly match or exceed the US$53.5 billion reached in 2003.

Last year's actual FDI was up 1.4 percent from the previous year, slowed due to the SARS outbreak.

China overtook the United States last year as the world's biggest recipient of foreign direct investment, drawing US$53 billion, according to a report by the Organization for Economic Cooperation and Development (OECD) this month.

The ministry approved the establishment of 21,688 new foreign funded enterprises between January and June, up 14.9 percent year-on-year.

(China Daily July 14, 2004)