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Economist: China's economy has landed
Updated: 2005-11-03 09:00

Growth in M2 money supply, a measure of how much cash is available in the banking system, has accelerated in recent months.

Some have seen that as a sign that the central bank has taken its foot off the brake, but Tang said foreign money coming into the country was the cause.

"Rapid M2 growth in recent months was caused by rapid inflow of foreign exchange," he said. The bank's monetary policy was stable.

"The purpose of the stable monetary policy is to keep economic growth on a stable footing," Tang said. "Monetary policy is in a period that needs observation."

"Based on end-September figures, foreign exchange reserves are still growing at a fast pace and I dare not say they will slow down," he said. "We still need to observe, because the effectiveness of foreign exchange reform has not appeared yet" in reserves growth.

The reserves have risen because China has been exporting more than it imports, because foreigners have sent money to the country to invest, and because speculators anticipating appreciation have bought yuan.

Tang repeated the official view that market forces have determined the yuan's very modest 0.3 percent appreciation since the 2.1 percent revaluation on July 21.

"People have different views," he said. "Some think it should go higher. Some think it should not."

"In the short term, there will be upward pressure on the renminbi (yuan) but in the long term it will depend on how the economy performs and on other factors, such as the global economy and productivity."

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