Bank loan growth was still in the fast lane in 2004's first quarter amid central authorities' repeated calls for a stop in over-investment in such industries as iron, aluminum and cement.

A central bank report released Wednesday shows that outstanding loans -- from all financial institutions including foreign banks and in local and foreign currencies -- jumped year-on-year 20.7 percent to the equivalent of 17.9 trillion yuan (US$2.2 trillion) by last month-end.

From January to March loans increased 913.1 billion yuan (US$110 billion), an annualized increase of 59.6 billion yuan (US$7.2billion).

The central People's Bank of China said the loan structure, however, was optimized on the back of a fairly high growth of Renminbi loans to agricultural projects, capital construction and consumers, sectors encouraged by the Chinese government to contribute to balanced economic growth.

The central bank said the financial industry ran "smoothly" in the first quarter and vowed to keep in place the "stable" monetary policy.

China has successfully kept its currency stable, neglecting the calls by some developed countries for a yuan appreciation, which they claimed would balance their trade with China. One US dollar was equal to 8.2771 yuan at end-March.

The outstanding foreign exchange reserves shot up nearly 40 percent from a year ago to US$439.8 billion.

China now still implements rigid foreign exchange controls, which mean that the central bank will buy forex flowing into the country, raising the nation's forex reserves while releasing more base money into the market.

The incremental reserves amounted to the equivalent of US$36.5 billion in the first quarter, US$6.9 billion  more than the same period last year. Analysts note that while robust foreign trade was factored, forex inflows betting on an upward revaluation of the yuan partly contributed to the hike.

According to the latest report, the outstanding broad money supply M2, including money in circulation and all deposits, rose a year-on-year 19.1 percent to 23.2 trillion yuan (US$2.8 trillion) at last month-end, while the narrow money M1 including money in circulation and demand deposits of enterprises grew 20.1 percent to 8.6 trillion yuan (about US$1 trillion).

"In general, money supply is fairly ample," the report said.

The outstanding deposits rose 19.6 percent on an annual basis to 23.3 trillion yuan (US$2.8 trillion) by the end of March. "Ordinary people still lack investment channels," said a People's Bank expert.

In China the actual bank interest rate has, so far this year, been in negative territory after deducting price hikes and tax on interest income.
 
(Xinhua News Agency April 14, 2004)