Inthe first half of 2004, under the steering of the State Council, the People'sBank of China (PBC) used various monetary policy instruments, includingstrengthened open market operations and differentiated required reserve ratiosfor financial institutions, to appropriately control the growth of base moneyand the faster than desired expansion of money and credit. Macro financialcontrol polices have since proved quite effective as growth of money supplydeclined, the faster than desired expansion of loans were brought undercontrol, deposits increased steadily, and RMB exchange rate remained stable. Ingeneral, appropriate control of aggregate money and credit has contributed tothe healthy and stable performance of the financial industry.

 

1.      Thegrowth of  money supply declinedsteadily, falling within the PBC projected target

At end-June, broad money (M2) stood atRMB23.8 trillion yuan, increasing year-on-year by 16.2 percent, 4.7 percentagepoints lower from the end of last June, or down by 3.4, 2.9 and 1.3 percentagepoints respectively from 2003, the end of the first quarter of 2004 andend-May. Narrow money (M1) reached RMB8.9 trillion yuan, increasing by 16.2percent, 4.1 percentage points lower from a year earlier, or down by 2.5,4.1and 2.4 percentage points respectively from 2003, the end of the firstquarter of 2004 and end-May. Cash in circulation (M0) increased year-on-year by12.2 percent to RMB1.9 trillion yuan. The accumulated cash withdrawal in thefirst half of 2004 totaled RMB72.8 billion yuan, RMB40.7 billion yuan more thanthat recorded for the same period of 2003. The growth of M2 and M1 both showeda trend of steady decline, with the current figure falling within the PBC'sprojected growth target of 17 percent.

 

2.      Depositsincreased gradually

Outstanding deposits denominated inboth local and foreign currencies in all financial institutions reached RMB24.2trillion yuan at end-June, increasing by 17.1 percent from a year earlier. RMBdeposits grew by 18.2 percent to 22.97 trillion yuan, with 2.2 trillion yuanadded in the first half of 2004, 178.6 billion yuan less than that recorded forthe same period of 2003. In particular, new corporate demand deposits totaled RMB352.1billion yuan, RMB84.8 billion yuan less than the increase recorded in the sameperiod of last year; household savings deposits increased by RMB1.01 trillionyuan, RMB52.2 billion yuan less than the growth of the same period of 2003. Foreigncurrency deposits climbed by USD1.9 billion, USD1.5 billion more than thatrecorded for the first half of 2003, to USD151.1 billion, with the growth rateapproximately at the same level as that recorded a year earlier. In particular,cumulative increase of corporate deposits amounted to USD4.6 billion, USD6billion more than the growth of the same period of 2003, while householdsavings deposits decreased by USD5.2 billion, a deceleration of USD6.7 billion.

 

3.      Thefaster than desired expansion of credit was reined in effectively

Atend-June, outstanding loans denominated in both local and foreign currencies inall financial institutions reached RMB18.1 trillion yuan, increasingyear-on-year by 16.7 percent. RMB loans increased by 16.3 percent on comparablebasis to 17 trillion yuan, 6.8 percentage points lower from the end of lastJune, or down by 4.8,3.8 and 2.3 percentage points respectively from 2003, theend of the first quarter of 2004 and end-May. New RMB loans extended in thefirst half of 2004 totaled RMB1.43 trillion yuan, RMB350.1 billion yuan lessthan that recorded for the same period of 2003 on comparable basis (Cumulativeincrease of loans in the first half of 2003 amounted to RMB1.78 trillion yuan,RMB 951.1 billion yuan more than that recorded for same period of 2002.) Inparticular, the growth of loans in June alone was RMB239.6 billion yuan lessthan that of last June. In terms of loan structure, short-term loanscumulatively increased by RMB544.1 billion yuan, RMB168.4 less than thatrecorded for the first half of 2003; medium and long-term loans increased byRMB733.1 billion yuan, RMB73.8 billion yuan up from a year earlier; paperfinancing increased by RMB129.2 billion yuan, a deceleration of RMB212.8billion yuan. Balance of foreign currency loans in all financial institutionsrose by 24.6 percent on comparable basis to USD134.6 billion. Cumulativeincrease of foreign currency loans in the first half of 2004 amounted toUSD15.6 billion, USD0.8 billion more than the growth recorded for the sameperiod of 2003. In particular, short-term loans grew by USD7.89 billion, anacceleration of USD1.85 billion, medium and long-term loans grew by USD4.35billion, USD0.31 billion more than that recorded for the first half of 2003,while on-lending of funds raised overseas decreased by USD620 million, USD380million more than the decline recorded for the first six months of 2003, andtrust loans decreased by USD120 million, USD920 million more than that recordedfor the same period of 2003. In short, the faster than desired expansion ofcredit since 2003 has been reined in effectively, with the growth of aggregatecredit currently standing at an appropriate level.

 

4.      RMBexchange rate remained stable

Official foreign exchange reserves increasedby USD67.3 billion, USD7.2 billion more than that recorded for the first halfof 2003, to USD470.6 billion at end-June, up 35.8 percent. RMB exchange rateremained stable, being at 8.2766 yuan per US dollar, approximately the samelevel as that of end-2003.

 

 

 

 

 

 

 

 

Sources and Uses of Renminbi and Foreign Exchange Credit Funds of Financial Institutions
2004-06                  Unit:RMB100million yuan
Funds Sources	Balance	Funds Uses	Balance
I. Total Deposits	242174.10	I. Total Loans	181046.84
1.Deposits of Enterprises	84068.71	1.Short-term Loans	90233.60
(1)Demand Deposits	58259.30	2.Long and Medium -term Loans	74230.25
(2)Time Deposits	25809.41	3.Trust Loans	2495.59
2.Savings Deposits	120443.17	4.Paper Financing	10834.30
(1)Demand Deposits	40907.94	5.Other Loans	3253.10
(2)Time Deposits	79535.23	II. Portfolio Investments	38199.69
3.Trust Deposits	2722.29	III. Position for  Bullion&Silver Purchase	337.24
4.Other Deposits	34939.93	IV . Assets in International  Financial Institutions	883.54
II. Liabilities to International  Financial Institutions	524.91
III. Other Items	-22231.70
Total	220467.31	Total	220467.31
Note: 1.Financial institutions referred to in this table include the People's Bank of China, policy banks, State-owned commercial banks, other commercial banks, city commercial banks, UCCs, RCCs, rural commercial banks, TICs, financing companies, leasing companies, postal savings institutions and foreign-funded financial institutions.   2.The Bank of China, the China Construction Bank and the Bank of Communications transferred and wrote off part of their loans in June, thus their balance of loans slightly decreased from that of end-May.

 

 

 

 

 

Sources and Uses of Renminbi Credit Funds of Financial Institutions
2004-06                 Unit: RMB100 million yuan
Fund Sources	Balance	Fund Uses	Balance
I . Total Deposits	229670.82	I . Total Loans	169905.22
1. Deposits of Enterprises	79357.97	1. Short-term Loans	86150.57
2. Fiscal Deposits	8192.30	(1) Loans to Industrial  Sector	23271.96
3. Deposits of Government Departments?ganizations	7204.72	(2) Loans to Commercial  Sector	17152.36
4. Household Savings  Deposits	113792.47	(3) Loans to Construction  Sector	2574.03
(1) Demand Deposits	39617.79	(4) Loans to Agricultural  Sector

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