China's money and loan growth picked up moderately last month, soothing worries among some economists that the State's tightening measures may overshoot.

M2, the broad money supply, increased by 14 per cent on a year-on-year basis to 24.71 trillion yuan (US$2.9 trillion) at the end of November, which compares to the 13.5 per cent recorded one month earlier, the People's Bank of China (PBOC) said yesterday.

Outstanding renminbi loans rose by 13.5 per cent to 17.52 trillion yuan (US$2.1 trillion), 0.2 percentage points up from the pace at the end of October.

"The numbers alleviate our worries about abrupt money and loan growth, but we are expecting higher numbers in December to meet our full-year forecasts," San Feng, an analyst with the State Information Centre (SIC), told China Daily.

The SIC expects full-year M2 growth to register 15.2 per cent, which compares to the official target of 17 per cent set at the beginning of the year.

China's M2 growth hovered at levels above 20 per cent for a few months of last year as heated fixed investment fuelled bank loan growth.

The pace slowed down this year as macro management steps such as credit curbs and some administrative measures took effect, hitting a trough of 13.5 per cent last month and prompting concerns that the tightening may disrupt necessary economic growth.

"We believe the central bank would like to see both loan and money supply growth rates continue the trend of steady improvement," Liang Hong, China economist with Goldman Sachs (Asia), said in a statement.

The easing of administrative controls has already led to sequential improvements in money and credit growth compared with the second quarter this year, she said.

"Our assessment is that as the government has rolled back its administrative controls, the risks of a policy overshoot are small."

The growth of savings by Chinese also accelerated, which the central bank said was partly due to its 27 basis point interest rate hike in late October.

Renminbi savings growth rose by 15.1 per cent on a year-on-year basis to 11.76 trillion yuan (US$1.4 trillion) at the end of last month up 0.6 percentage points from the end of October, the PBOC said.

The improvement in savings growth presumably has delighted policy makers, who worried about funds staying out of the banking system to erode the effect of macro management, as the growth declined for a few consecutive months earlier this year.

"Inflation expectations are not as strong as in earlier months," San said. "Savings have again become the main venue of household funds, although the growth rate remains low."

China's first interest rate hike in nine years in October has considerably strengthened people's willingness to deposit their money at banks, with the percentage of depositors who would like to "make more deposits" hitting a record-high of 39.5 per cent, according to a PBOC survey released last week.

Corporate deposits growth also picked up, easing worries that the macro management may hamper growth by causing liquidity difficulties at businesses.

(China Daily December 14, 2004)