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M2 growth slows to 16% on tight policy

By Xin Zhiming (China Daily)
Updated: 2008-09-13 10:29

China's annual growth in the broad M2 measure of money supply fell to 16 percent in August - the slowest pace in 19 months - from 16.4 percent in July, the People's Bank of China said on Friday.

The slowdown in growth of M2, which includes cash and all deposits, shows that the country's previous tightening policy is taking effect, analysts said.

The yuan-denominated lending rose 14.3 percent year-on-year in August, compared with 14.6 percent in July, while the new yuan loans in August dropped to 271.5 billion yuan ($39.68 billion) from 381.8 billion yuan in July.

"This data suggests the credit tightening scheme introduced in November 2007 has shown its impact," said Sun Mingchun, an economist with Lehman Brothers in Hong Kong.

They also indicate that banks may be more cautious in lending as the economic growth is weakening, which increases the risk of making bank loans non-performing, analysts said.

The new yuan lending for the first eight months came to 3.1 trillion yuan, compared with 3.63 trillion yuan for the whole of 2007. But the central bank has recently expanded the loan quotas by 5 percent for big banks and 10 percent for small ones to combat the downside risk for economic growth.

The central bank has also required more lending to small enterprises in the May 12 earthquake-hit regions and rural areas to stimulate industrial output and consumption.

But many analysts argued the country may need more and bolder moves to save the economy from a hard landing. People are waiting to see whether policymakers will only fine-tune economic policies or hand out a "large one-off stimulus package".