China's central bank said yesterday it would further examine the forces that had caused the rapid loan rises in the first half of the year to stave off possible risks.
Governor Zhou Xiaochuan of the People's Bank of China (PBOC) said at the bank's half-yearly conference yesterday that a priority for the second half of the year was to "conduct in-depth analysis of, and pay high attention to, the reasons for the rapid loan growth and the possible risks."
As economic activity continues to recover, refuelling business borrowing needs, total outstanding loans in the country soared by 22.9 per cent year-on-year to 15.9 trillion yuan (US$1.9 trillion) at the end of June.
That helped push M2 - the broad money supply gauge that covers cash in circulation and all deposits - to 20.5 trillion yuan (US$2.5 trillion) at the end of last month, up 20.8 per cent on the previous year, the fastest shift in six years.
"Overall, the growth of money supply is standing at a relatively high level," the bank said in its monetary policy report for June.
The PBOC disclosed the rapid money supply growth in May when the M2 growth rose above 20 per cent. Some economists, worried about the prospect of inflation, had been calling for a downshift for months.
In the May report, the bank hinted at the possibility of raising the ratio of deposit reserves of commercial banks, but did not elaborate on what they saw as the real problems behind the loan rises. Analysts cautioned that such a move may have led to unwantedly sharp shrinkages in new loans.
The bank stopped short of mentioning the move in a press release yesterday, but said it would use "various monetary policy tools" to ensure proper growth in loans and money supply. In a clear sign of concern, the bank ordered commercial banks last month to restrict property loans.
Aanalysts say the problem is that while many long and medium-term loans keep flowing into areas like autos, housing and infrastructure construction, prompting worries about overheating, only inadequate amounts of funds have been lent to small and medium-sized enterprises (SMEs) and farmers, who, they say, are most in need of funding.
"So those who really need the sunshine are still not getting it," said Wang Yuanhong, a researcher with the State Information Center.
Chinese economists are still split over the pace of money supply growth, with some pushing for faster growth to underpin economic growth and others calling for a slowdown to prevent inflation.
(China Daily July 15, 2003)
