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Money supply surges as loans boom
By Zhang Fengming |
March 13, 2009, Friday
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Print Edition
Print Edition
CHINA'S money supply grew at the fastest pace in more than five years in February as banks quadrupled lending from a year ago to help boost the economy.
M2, the broadest measure of money supply, climbed 20.48 percent from a year earlier to 50.71 trillion yuan (US$7.42 trillion), after growing 18.8 percent in January, the People's Bank of China said yesterday. The gain was the most since October 2003.
Chinese banks extended 1.07 trillion yuan worth of new yuan-denominated loans, up 827.3 billion yuan from a year ago. The February lending followed record January credit of 1.62 trillion yuan as banks hurried to write loans to support the central government's 4-trillion-yuan stimulus package.
Outstanding yuan-backed loans rose 24.1 percent year on year to 33 trillion yuan at the end of February.
"There seems to be little stress in the Chinese financial system, as funds are easily flowing from the government's stimulus package into real economic activity," said Tine Olsen, a Moody's Economy.com economist.
Even so, two potentially worrisome figures were released yesterday: a significant growth in savings and a slower rise in retails sales, indicating the central government's goal to stimulate domestic demand to make up for declining exports is not fully on track.
Further, the loan expansion may be happening at such a rapid pace that it could be outstripping the authorities' ability to monitor it, Olsen said.
Central bank Governor Zhou Xiaochuan said last week that loans and money supply may have grown too quickly in the first two months but that the central bank has the room to fine-tune the expansion later this year. On a cautionary note, the credit boom will not be sustainable without stabilization in the broader economy, said Ken Peng, a Citibank economist in Shanghai.
"In this environment, the central bank may be wrestling with the dichotomy of a significant credit boom and weakening economic fundamentals," Peng said.
Meanwhile, 1.65 trillion yuan in new savings was put into bank accounts in February, up 317.1 billion yuan from a year ago.
Olsen said the rise in deposits is a troublesome indicator. It means that individuals are still saving while corporations continue to cut back on investment amid a grim business outlook.
But as the stimulus plan begins showing results and the country becomes more confident in the economy, a trend toward consumption could thaw out deposits, she said.
That hasn't happened so far. China's retail sales growth slowed in the first two months of this year from late last year. Retail sales rose 15.2 percent year on year to 2 trillion yuan in the period, compared with 17.4 percent growth in December and a 20.2 percent rise a year earlier, the National Bureau of Statistics said yesterday.
M2, the broadest measure of money supply, climbed 20.48 percent from a year earlier to 50.71 trillion yuan (US$7.42 trillion), after growing 18.8 percent in January, the People's Bank of China said yesterday. The gain was the most since October 2003.
Chinese banks extended 1.07 trillion yuan worth of new yuan-denominated loans, up 827.3 billion yuan from a year ago. The February lending followed record January credit of 1.62 trillion yuan as banks hurried to write loans to support the central government's 4-trillion-yuan stimulus package.
Outstanding yuan-backed loans rose 24.1 percent year on year to 33 trillion yuan at the end of February.
"There seems to be little stress in the Chinese financial system, as funds are easily flowing from the government's stimulus package into real economic activity," said Tine Olsen, a Moody's Economy.com economist.
Even so, two potentially worrisome figures were released yesterday: a significant growth in savings and a slower rise in retails sales, indicating the central government's goal to stimulate domestic demand to make up for declining exports is not fully on track.
Further, the loan expansion may be happening at such a rapid pace that it could be outstripping the authorities' ability to monitor it, Olsen said.
Central bank Governor Zhou Xiaochuan said last week that loans and money supply may have grown too quickly in the first two months but that the central bank has the room to fine-tune the expansion later this year. On a cautionary note, the credit boom will not be sustainable without stabilization in the broader economy, said Ken Peng, a Citibank economist in Shanghai.
"In this environment, the central bank may be wrestling with the dichotomy of a significant credit boom and weakening economic fundamentals," Peng said.
Meanwhile, 1.65 trillion yuan in new savings was put into bank accounts in February, up 317.1 billion yuan from a year ago.
Olsen said the rise in deposits is a troublesome indicator. It means that individuals are still saving while corporations continue to cut back on investment amid a grim business outlook.
But as the stimulus plan begins showing results and the country becomes more confident in the economy, a trend toward consumption could thaw out deposits, she said.
That hasn't happened so far. China's retail sales growth slowed in the first two months of this year from late last year. Retail sales rose 15.2 percent year on year to 2 trillion yuan in the period, compared with 17.4 percent growth in December and a 20.2 percent rise a year earlier, the National Bureau of Statistics said yesterday.
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