China's money supply growth, a key measure of economic activity, slowed last month, state media said yesterday, leaving analysts a bit more confident the authorities have the capacity to rein in the fast growing economy.
M2, the broad measure of money supply covering cash in circulation and all deposits, was up 18.4 percent at the end of last month compared with a year earlier, the China Securities Journal reported, citing unnamed sources.
By contrast, M2 had risen 19.1 percent in May, according to previous reports.
PHOTO: AP
"One of the most important keys to M2 is bank loan growth and here the central bank is finally having some success in reining back the banks," said Stephen Green, a Shanghai-based economist with Standard Chartered Bank.
Growth in M1, the narrow money supply gauge covering cash in circulation and the demand deposits of enterprises, rose 13.9 percent last month, virtually unchanged from 14 percent in May, according to the report.
"This means that the central bank can take a breather in announcing further tightening measures," said Zhu Baoliang, an economist at the State Information Center, a government-controlled think tank.
China is experiencing a liquidity-driven boom that saw the economy soar 10.3 percent in the first quarter of this year.
This is in spite of China's stated goal of just 8 percent growth this year and highlights the challenge of managing the economy of a nation roughly as vast and diversified as the entire European continent.
"We forecast 10 percent [economic] growth this year but the quality is lacking," Lehman Brothers said in a research report. "Too much liquidity and overinvestment have led to excess capacity in many industries."
New loans totaled 360 billion yuan (US$45 billion) last month, down from 463 billion yuan in the same month a year ago but still up from 209 billion yuan in May, the report said.
This meant total new loans in the first six months of the year came to 2.14 trillion yuan or 85.7 percent of the central bank's official full-year target of 2.5 trillion yuan.
The China Securities Journal explained the rise over May as a result of seasonal factors, saying that loans usually speed up toward the end of each quarter.
It said that based on current trends the slowdown in lending growth was likely to continue in the second half of the year but Green of Standard Chartered warned against complacency.
"It is far too early to declare victory in the fight to control liquidity. We still think more [bank] reserve requirement hikes will be necessary but these numbers suggest that the central bank is fighting back effectively," he said.
The long list of measures that have been implemented by the central bank reflects both its determination and the strength of the forces it is up against.
The central bank raised benchmark lending rates at the end of April by 27 basis points in an attempt to discourage borrowers.
It has also targeted the most active lenders with two 100-billion-yuan placements of central bank paper in the first half at sub-market rates, hoping to mop up excess liquidity in the system.
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