China's money supply and credit growth grew steadily last month, at a proper pace to keep a sound economy, analysts said.

Growth of broad money supply or M2, which covers cash in circulation and all deposits, climbed 15.7 percent on a year-on-year basis in the first half year, according to a statement from the People's Bank of China (PBC) yesterday.

The growth rate was 0.1 percentage points higher than was recorded one month earlier but 0.5 percentage points down compared with the same period of last year.

"Overall, the growth of the broad money supply was stable and reasonable," the bank said in the written statement.

China's financial authorities introduced a slew of measures last year, including administrative land controls and credit curbs, to contain rapid growth in bank loans and money supply.

"The growth rate of M2 is moderate, suggesting a steady economic development," Wang Zhao, an analyst with the Development Research Centre of the State Council, told China Daily, "A growth rate falling between 16 percent to 18 percent is acceptable."

Outstanding local currency loans increased by 13.3 percent from a year earlier, to 18.6 trillion yuan (US$2.24 trillion) at the end of June. That was 8 percentage points more than a month earlier.

Foreign exchange reserves soared by 51.1 percent on a year-on-year basis to US$711 billion by the end of June.

China foreign exchange reserves continued to increase rapidly this year, amidst expectations of a revaluation of the local currency, or renminbi.

"As these key indicators show a rational growing momentum, there will be no deflation at all," said Wang Zhao, who dismissed worries that China will be troubled by deflation. "And the growth of gross domestic product (GDP) will probably be under 9.5 percent."

China's GDP has increased by 9.5 percent or above for three consecutive years, thus this year's growth is not likely to exceed 9.5 percent according to the economic cycle, Wang added.

"Thanks to the steady economic development, this is a good time to push our reforms, such as tax reform and encouraging private capital into state-owned industries, forward," Wang stressed.

(China Daily July 15, 2005)