The annual growth in China's broad measure of money supply, or M2 that includes cash and all deposits, edged down to 16.7 percent in May from 17.1 percent in April, the central bank said yesterday.

 

The drop reflects the stable trend of the country's money supply in recent months, although it crossed the target of 16 percent set by the People's Bank of China (PBC) for this year.

 

State Information Center's senior economist Hu Shaowei said: "It indicates that central bank measures have worked to keep the overall money supply under control."

 

China's M2 growth has slowed down from a peak of 19.2 percent in January, hovering around 17 percent this year. It was made possible by raising required reserves eight times and interest rates four times since April 2006.

 

The PBC website, however, said the narrow measure of money supply, or M1, continued to grow strongly in May at 19.3 percent year-on-year - the sixth consecutive month that it outgrew M2.

 

Analysts said the M1 growth rate, which includes cash and demand deposits, indicates the pressure of monetary expansion that could ultimately push up production and investment remains.

 

Household bank deposits continued their slide, falling from 167.4 billion yuan (US$21.9 billion) in April to 278.4 billion yuan (US$36.4 billion) last month.

 

"Most of this money may have flowed into the capital market," Hu said.

 

(China Daily June 13, 2007)