China aims to keep the annual growth of its broad money supply this year to within 16 percent, nearly 1 percentage point down from that of 2006, the central bank announced on Sunday.

 

The target was set on the basis of an expected 8 percent growth in gross domestic product (GDP) and a less than 3 percent rise in consumer prices year-on-year, the central bank said at its annual work conference that concluded yesterday.

 

The bank set no goals for the growth of narrow money supply or bank credit as it had previously done, which analysts interpreted as a sign of a more flexible financial macro-control.

 

"With frequent economic changes and a more and more market-oriented banking sector, it's meaningless to set goals for specific indices like new bank loans," said Yi Xianrong, an economist with the Chinese Academy of Social Sciences.

 

The narrow money supply, or M1, refers to the amount of cash in the hands of residents and enterprises and the latter's current deposits.

 

The broad money supply, or M2, includes the cash held by residents and enterprises and all sorts of deposits in banks, reflecting the whole society's demand and indicating the pressure for future inflation.

 

"The central bank should no longer adhere to the fixed target all the time but make its monetary policies more foresighted, scientific and efficient," Yi said, urging the bank to adjust macro-control measures according to changes.

 

Last year, the central bank set its macro-control targets at a 16 percent annual growth for M2, a 14 percent rise for M1, and 2.5 trillion yuan (US$312.5 billion) of newly added loans in Renminbi.

 

Data from the bank show the country's M2 last year rose 16.94 percent year on year to 34.56 trillion yuan, with M1 up 17.48 percent to 12.6 trillion yuan and new credit surging to 3.18 trillion yuan, or 27 percent beyond target.

 

The money supply and credit targets are not missions it must meet but only a policy guide, the bank has said. 

 

The central bank pledged to adopt multiple tools for monetary macro-control and to advocate flexibility in interest rate adjustments to address excessive currency liquidity.

 

It said it will continue to implement a prudent monetary policy and improve its foresight on the country's economy and financial sector.

 

(Xinhua News Agency January 22, 2007)