China's broad M2 money supply grew at a slower pace in December, signaling the country's tightening measures in previous months are taking hold.

The year-on-year growth of M2, which includes cash and all deposits, slowed to 16.7 percent from 18.5 percent in November, the central bank said on Friday.

But pressure from lending and foreign exchange reserve growth remains, analysts said.

The slow-down in M2 growth is a result of the comprehensive macroeconomic control measures in recent months, said Zhang Jun, director of the China Center for Economic Studies, Fudan University.

"Policy was especially tight in the last two months of 2007, when policymakers raised the banks' reserve requirements twice, which kept the monetary base in control."

China raised the reserve requirement ratio, or the proportion of money commercial banks must hold in reserve, by 0.5 percentage points to 13.5 percent from November 26. A month later it raised it again by 1 percentage point to 14.5 percent, its 10th hike last year.

Additionally, authorities raised interest rates six times last year.

The situation remains serious, however, as the growth of narrow M1 money supply, or cash plus demand deposit, grew by 21 percent in December. Although it was slightly slower than in November, it was 3.53 percentage points higher than the year-on-year growth in 2006.

Yuan-denominated lending rose by 16.1 percent in December from a year earlier, the central bank said.

Banks altogether extended 3.63 trillion yuan in new loans last year, about 14.15 percent more than the 3.18 trillion yuan of new loans in 2006.

"The figures remain large, but the authorities brought lending down in the second half of last year after brisk growth in the first half," Zhang said.

Foreign exchange reserves hit $1.528 trillion by the end of 2007, the central bank said.

The annualized growth rate - which was 43.3 percent - was 1.81 percentage points down from the end of the third quarter.

Despite weakening growth, reserves are still large and will have a pressure on renminbi appreciation, Zhao Xijun, finance professor of the Renmin University of China, said.

"This is a result of strong economic growth last year and also shows that Chinese products are well received in international markets," he said.

(China Daily January 12, 2008)