China's money supply growth maintained its high-speed momentum last month, prompting economists to call for a "moderate tightening" of the monetary policy to slow it down.

 

"The lending growth pace is very fast, which should be reined in," said Niu Li, an economist with the State Information Center.

 

M2, a broad measure of money supply that covers cash in circulation and all deposits, swelled 18.9 percent on a year-on-year basis to 31.37 trillion yuan (US$3.92 trillion) at the end of April, according to figures released yesterday by the People's Bank of China, the central bank.

 

The growth rate was 4.8 percentage points higher compared with the same period last year.

 

The central bank has set a growth target for the M2 of 16 percent this year.

 

Total lending climbed 14.8 percent on a year-on-year basis to 22.21 trillion yuan (US$2.78 trillion) by the end of last month, the central bank said.

 

New local currency lending in April surged to a record 317.2 billion yuan (US$39.65 billion) from 142.2 billion yuan (US$17.78 billion) the same month a year ago, the central bank said.

 

Outstanding local currency loans in all financial institutions stood at 20.96 trillion yuan (US$ 2.62 trillion) at the end of last month, up 15.5 percent on a yearly basis and 3 percentage points higher compared with the same period last year.

 

"All the figures indicate that the current financial situation is a contributing factor to the fast investment and economy growth," said Zhuang Jian, a senior economist with Asian Development Bank's Resident Mission in China. He suggested the central bank could consider taking further monetary measures to fine tune the economy.

 

"The brisk growth in lending, in particular, should raise concern, especially as to where the huge amount of lending ended up," he added.

 

If too much loaned money ended up in the property market, it could be a major problem, the economist said.

 

The central bank, in a bid to curb credit and investment growth, raised the one-year benchmark lending rate by 27 base points to 5.85 percent on April 27.

 

"The new figures show that the central bank should follow up last month's rate rise with other monetary measures," Niu Li said. "More rate hikes or increasing the bank's required reserve ratios should be considered and encouraged."

 

"But all those proposed measures should be moderate in their intensity," he added.

 

The central bank will closely monitor the effects of its policies and stick to a stable monetary policy, maintaining reasonable growth in both the money supply and credit, it said on its website yesterday.

 

The M1, an indicator reflecting liquidity and covering cash in circulation and current account deposits, rose by 12.5 percent on a year-on-year basis by the end of last month, down from 12.7 percent in the first quarter.

 

Household deposits also maintained their upward trend last month, the central bank said.

 

(China Daily May 16, 2006)