China needs "decisive" measures to rein in excessive demand and
control inflation pressures as its M2 growth has understated the
speed of monetary expansion, according to the latest report by
Goldman Sachs, the US investment bank.
Growth rate of M2, a broad measure of money supply, edged down
to 17.1 percent in April 2007, while M3, which includes M2,
deposits in non-bank financial institutions and securities issued
by financial institutions, picked up to 19.2 percent
year-on-year.
"The M3 growth rate has been faster than that of M2 since the
second quarter of 2006, likely reflecting the fast accumulation of
capital-market-related financial assets," said Liang Hong, chief
China economist with Goldman Sachs Asia.
Figures from the bank show that bonds issued to non-financial
institutions grew 30 percent year-on-year in April and non-M2
deposits by other financial institutions soared 63 percent over the
same period of last year.
In the past, M2 and M3 are used to maintain similar growth
speeds due to relatively small changes in non-M2 liabilities in the
country, said Liang, who believed a broader money supply measure
like M3 would be a more useful parameter to assess the extent of
monetary expansion and to forecast the demand, given the rapid
growth in capital markets.
Since the M3 growth has been hovering over 19 percent
year-on-year in recent months, she expected the economy would
continue to speed up and inflation might intensify in the near
term.
The Goldman Sachs predicted the consumer price index (CPI), a
major inflation gauge, would be at 3.6 percent in 2007 and an
average of more than four percent in the rest of the year. The bank
expected CPI inflation to ease to 2.6 percent in 2008.
The China Securities Journal, citing a report from the
central bank's research bureau, reported the CPI was expected to
rise 3.2 percent for the whole of 2007, with its peak of 3.5
percent in the third quarter.
Food prices have climbed in China this year, pushing the
country's CPI to 3.4 percent in May, higher than the government's
warning level of three percent.
(Xinhua News Agency July 8, 2007)