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 | Tuesday, April 25, 2000, updated at 13:20(GMT+8) | ||||||||||||
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Bank Increases Money Supply to Back GrowthChina's monetary policy will focus on maintaining a balance between economic growth and preventing financial risks in the second quarter, the central bank's monetary policy committee decided Monday.The panel, an arm of the People's Bank of China (PBOC), also agreed that market-orientated reform of interest rates should be accelerated. The central bank would utilize a variety of monetary tools to "moderately increase money supply" in the April-June period to support economic growth, the committee said. The performance of the economy and the finance industry was sound in the first quarter, PBC said. The broad money supply measure, called M2, gauged by cash in circulation and all deposits, increased 13 per cent to 12.3 trillion yuan (US$1.5 trillion) at the end of last month when compared to the previous March.This is "in keeping with economic growth and the current price levels," the bank said. Banks should continue financing State debt-funded infrastructure projects and technical upgrades as well as promoting growth in the central and western areas, it said. On a related front, the central bank said the development of the capital market should be accelerated to boost direct financing, as compared to commercial lending with banks as the broker, to reduce financial risks faced by Chinese banks. The panel agreed that the ratio of the M2 to the gross domestic product in China is "higher than major countries," which means credit risks are excessively concentrated on banks. The central bank said China would reform its interest-rate system so that "borrowing and lending rates with financial institutions are decided by supply and demand on the market and guided by the central bank." Chinese banks now operate with little flexibility on interest rates, which are largely set by the PBC. And the central bank reiterated that the current financial regulation which forbids banks, securities firms and insurance companies to step into each other's businesses was "in keeping with the condition in China.''
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