China Money Supply Rises 17.1%, Exceeding Target

By Nipa Piboontanasawat and Helen Yuan

May 13 (Bloomberg) -- China's money supply growth exceeded the government target for a third month and lending accelerated, adding pressure on the central bank to raise interest rates.

M2, which includes cash and all deposits, rose 17.1 percent in April from a year earlier, the People's Bank of China said on its Web site today, after gaining 17.3 percent in March. That beat the 17 percent median estimate of 19 economists surveyed by Bloomberg News and the central bank's 2007 target of 16 percent.

Outstanding yuan loans also rose more quickly last month than in March as tighter lending rules and higher borrowing costs failed to curb investments in factories and real estate. The People's Bank of China has raised interest rates three times since April 2006, as well as increasing the amount lenders must set aside as reserves seven times, in a bid to slow asset bubbles and accelerating inflation.

``Lending is still very strong and that sustains fixed-asset investment,'' said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``The central bank wants to reduce loan growth and make savings more attractive to cool the stock markets.''

Kowalczyk expects the central bank to raise both lending and deposit rates in June. The one-year benchmark lending rate is at 6.39 percent.

Outstanding yuan loans climbed 16.5 percent in April from a year earlier, today's statement said, up from 16.3 percent in March. Banks extended 422 billion yuan of new loans last month, making the total for the first four months 1.8 trillion yuan, more than half the total for the whole of last year.

Economic Growth

China's economy, the world's fourth-largest, grew 11.1 percent in the first quarter, accelerating from 10.4 percent in the previous three months. Fixed-asset investment in urban areas climbed 25.3 percent in the period, compared with 24.5 percent for the whole of last year.

The central bank will continue ``stable'' monetary policy, strengthen liquidity control and guide ``adequate'' loan growth, using reserve requirements and open market operations as tools, it said in a quarterly monetary policy report.

China's trade surplus swelled 88 percent in first four months from a year earlier to $63.3 billion, pumping more cash into the economy and complicating government effort to rein in money supply, lending and fixed-asset investments.

Higher Inflation

China's inflation accelerated to 3.3 percent in March, the highest in more than two years, and more than the central bank's target of 3 percent.

With the benchmark one-year deposit rate at 2.79 percent, Chinese households, concerned that they are losing money on savings held at banks, have rushed into the stock markets. The benchmark CSI 300 Index has jumped 81 percent since the start of this year.

Among Chinese 20,000 households surveyed by the central bank in February, a record high of 30.3 percent said they intend to invest their money in stocks and funds.

Investors in China opened 8.58 million new accounts at brokerages in the first quarter, up from 5.38 million for the whole of 2006, according to the China Securities Depository and Clearing Corp.

Outstanding yuan deposits rose 15.7 percent in April from a year earlier, today's statement said, down from 15.9 percent in March. M1, the narrower measure which includes cash and demand deposits, increased 20 percent, marking its fifth month of exceeding growth in M2.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net Helen Yuan in Shanghai at hyuan@bloomberg.net