May growth holds steady
By Zhao Renfeng (China Daily)
Updated: 2005-06-11 08:45

China's money supply and credit growth showed a steady rise in May, providing further evidence that government austerity measures are keeping the economy on the right track.

Fitting well with many analysts' expectations, figures released on Friday by the People's Bank of China (PBOC) showed that annual growth in China's broad M2 money supply grew to 14.6 per cent in May while loan growth fell to 12.4 per cent during the same period.

"The country's financial status was healthy and stable in May," said PBOC, the central bank, in a statement on Friday.

The growth rate of M2 money supply, which covers cash in circulation and all deposits, was 0.5 percentage points faster than one month earlier, but down 2.9 percentage points from the same period last year. The annualized, seasonally adjusted pace of yuan-denominated lending fell in May, to 9.4 per cent, from 11.5 per cent the month before.

Gao Huiqing, a senior economist with the State Information Centre, said: "The figures are the natural outcome of the government's credit tightening policies. Slowdown in loan growth is widely anticipated."

He said the figures also indicated that the country's commercial banks are becoming prudent in lending, due to the need for them to meet the 8-per-cent capital-adequacy ratio and improve their competitive edge before China's market restrictions are eased for foreign banks by the end of 2006 in accordance with China's commitment to the World Trade Organization.

One of the goals the central bank is aiming for is to help improve domestic banks' capabilities in managing risks and also to relieve large State enterprises from excessive dependence on bank loans.

"It still takes time for banks to learn how to well assess their risks when the government orders credit tightening," said Gao.

Experts said stable credit growth will be likely maintained in the second half of this year, but there are some uncertainties mounting in the country's economy.

"The elusive stock market performance, for instance, may lead to some large changes in credit growth," said Gao.

Property markets, according to Gao, will also be loaded with hidden uncertainties.

The government has ordered tight credit curbs and land controls on some overheated sectors, trying to cool down rapid growth and prevent the economy from overheating.

With many encouraging signs showing the slowdown of the economy, Gao said the government seems to have come through the most difficult time, but it is still too early to say when the government will change the tightening policies.

According to the National Bureau of Statistics, China's producer price index, another important economic indicator, rose 5.9 per cent in May from a year earlier, the quickest pace in five months as rising demand in the country's economy pushed raw-materials costs higher.

The index is one of the most important gauges for monitoring the progress of the nation's economy.

Gao said there will likely be a downward trend in producer prices as China recently announced even stricter measures for cooling down investment in real estate, which has upset market mood.

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