China is to increase its money supply by 17 percent next year, stabilize its stock market and expand financing channels for companies to bolster the economy, the State Council said in a broad blueprint for easing financial conditions.

It follows a pledge by the top leadership last week to take measures to stimulate domestic demand as the economy slows due to the global financial crisis, and comes on the heels of a 4-trillion-yuan (US$586 billion) stimulus package announced last month as well as repeated interest rate cuts.

M2, the broadest measure of money supply, which includes cash and all deposits, will increase 17 percent in 2009, the State Council said on its Website on Saturday. The Cabinet said that would be 3 to 4 percentage points above the combined growth of economic output and consumer prices.

The government will also suspend the issue of three-year central-bank notes and cut the frequency on issuing one-year and three-month bills to buoy liquidity, the statement said.

The total newly added yuan-denominated lending is expected to top more than 4 trillion yuan this year, up from its year-beginning new lending target of 3.63 trillion yuan.

"The 17 percent growth of money supply signaled the government's stance to boost liquidity, though it may be challenging against the economic background next year," Lu Zhengwei, an Industrial Bank chief economist, said yesterday.

The growth of China's money supply has slipped this year as business activity and bank lending slowed. M2 growth shrank from 16 percent in August to 15 percent in November.

The People's Bank of China, the central bank, has already scrapped lending quotas since November, cut interest rates four times since September and freed banks to lend more money.

China will increase policy-bank loans over the 2008 level of 100 billion yuan.

In November, the central government announced the 4-trillion-yuan stimulus package by 2010, including massive infrastructure investment. Banks have already said they will offer related lending to support such projects.

Banks may also ease credit to businesses with temporary difficulties but strong in orders and well positioned in the market.

Economic indicators show that China is not immune from the global financial crisis. Exports fell in November for the first time in seven years and the sector expects worse to come.

The statement includes measures targeting banking, insurance and bond and stock markets to boost the financial institutions' support to shore up the economy.

China will take measures to stabilize its capital market, including launching a growth enterprises board, which will serve small and medium firms, at the appropriate time to offer them more financing channels.

The central government is also to launch rules on private equities to increase companies' financing channels and make better use of non-state capital.

China will also "increase flexibility" for lowering lending rates and also boost flexibility in foreign-exchange rates as it aims to maintain a "stable, balanced" foreign exchange rate, the Cabinet said in the statement.

(Shanghai Daily December 15, 2008)