Growth in China's money supply picked up in the first quarter
due to increased loans and a widening trade surplus, according to
figures from the People's Bank of China.
The growth of the broad money supply, or M2, which covers cash
in circulation and all deposits, climbed 18.8 percent on a
year-on-year basis to 31.1 trillion yuan (US$3.9 trillion) by the
end of March, according to a statement from the central bank on
Friday.
The growth rate was 1.2 percentage points higher than was
recorded at the end of last year and 4.7 percentage points higher
compared with the same period last year.
"The rise of M2 is triggered by growing loans and the swelling
trade surplus," Wang Yuanhong, an economist with the State
Information Center (SIC), told China Daily.
The outstanding local currency loans in all financial
institutions stood at 20.6 trillion yuan (US$2.6 trillion), up 14.7
percent on a yearly basis. The rate is 1.8 percentage points higher
than at the end of last year.
"More large-scale projects and infrastructure construction
following the 11th Five-Year Plan contributed to the rising loans,"
Wang explained. "Besides, Chinese banks, which are eager to meet
their business targets for this year, are also giving out more
loans."
The trade surplus widened to US$11.2 billion in March, the
second highest on record, from US$2.43 billion the month before,
while foreign investment in the first quarter rose 6.4 percent to
US$14.3 billion, the Ministry of Commerce said this week.
According to Wang, the growth rate of the M2, although a little
quicker than that of the commodity price, is still acceptable. But
more liquidity, which means there is more capital in the market,
could be a double-edged sword.
"If that capital flows into stock, agriculture or the high-tech
sector, that will be a piece of good news. But if they rush into
real estate, or sectors with high energy consumption, the
government will find it a headache."
The M1, an indicator reflecting liquidity and covering cash in
circulation and current account deposits, grew by 12.7 percent on a
year-on-year basis by the end of March, 2.8 percentage points
higher than for the same period last year.
China's foreign-exchange reserves jumped 32.8 percent from
a year earlier to US$875.1 billion at the end of March. The
reserves grew US$200 billion last year, driven by a record US$102
billion trade surplus and US$60 billion in foreign investment.
"The ever-growing foreign-exchange reserves, a reflection of
both surplus under the current account and capital account, will
bring more pressure on the appreciation of the renminbi," said Li
Ruoyu, an economist with the State Information Center (SIC).
(Xinhua News Agency April 15, 2006)