China targets 15% money supply growth
(China Daily)
Updated: 2005-01-06 08:55

China's central bank will follow a prudent and stable monetary policy this year, targeting a 15 per cent money supply growth, sources with the bank's annual work conference said.

The bank estimates a 15 per cent year-on-year growth of both M1 and M2 in 2005, with 2.5 trillion yuan (US$301.9 billion) of new renminbi loans expected to be granted by all domestic financial institutions during the year, said Zhou Xiaochuan, governor of the People's Bank of China, on Tuesday at an ongoing work conference in Nanning, capital of South China's Guangxi Zhuang Autonomous Region.

Zhou Xiaochuan speaks at the annual work conference of the central bank. [Xinhua]

The growth of M2, the broad measurement of money supply, by the end of November was 14 per cent year-on-year. The estimated annualized M2 growth in 2004 is 14.5 per cent, Zhou says. That compares to a 17 per cent target set at the beginning of 2004.

The decrease is the result of the State's tightened measures to curb overheating in some economic sectors, analysts said.

China's M2 growth stood at 19.6 per cent at the end of 2003 and remained around 19 per cent in the early months of 2004 on the back of strong fixed asset investments and related lending growth.

The 2004 targets sent out a strong monetary tightening signal from the central bank, whereas the 2005 targets seem to emphasize policy stability, Liang Hong, China economist of Goldman Sachs (Asia), said yesterday.

"In the short term, we believe the central bank would like to see both loan and money supply growth rates continue the trend of steady improvement," Liang said.

The 15 per cent target growth for money supply in 2005 is rational, said Qin Chijiang, deputy secretary-general of the China Society of Finance.

It means that the central bank would follow a prudent monetary policy and keep the money supply growth at its present level, he said.

The ratio of M2/GDP has been too high in China for many years, so it is natural to control M2 growth, Qin said. However, he also said that even with controls on money supply, more structural adjustments are required to make economic development more healthy and more attention needs to be paid to the quality of growth.

So far, loans for funds-thirsty sectors such as agriculture, small and medium-sized enterprises (SMEs) and science and technology, are still insufficient, while lending for over-invested sectors should be further reined in.

Economists, however, argue that the target for money supply growth in 2005, at 15 per cent, is too low and may undermine economic momentum.

Wang Yuanhong, a senior analyst with the State Information Centre, said that he would prefer to see a higher rate for M2 growth in 2005, at 17 per cent or so.

Administrative controls have already meant that many businesses, especially SMEs, have suffered from difficulties in liquidity in the second half of 2004. That has aroused concerns about unemployment and underground financing, he said.

Apart from money supply growth targets, the central bank has also vowed to further liberalize interest rate schemes and deepen State banks' reform.

Zhou Xiaochuan said that the financial authorities would speed up the drafting of the restructuring plans of the Industrial and Commercial Bank of China and the Agricultural Bank of China to turn them into joint stock banks.

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