In the first half of 2005, under the steering of the State Council, the People’s Bank of China (PBC) continued to pursue the sound monetary policy, appropriately controlled money and credit aggregates by using a mix of monetary policy instruments, and guided the commercial banks to optimize credit structure. In general, appropriate growth of money and credit has contributed to the stable performance of the financial industry.

1.      The growth of money supply increased steadily

At end-June, broad money (M2) stood at RMB27.6 trillion yuan, increasing by 15.7 percent on a year-on-year basis, with the growth decreasing by 0.5 percentage points from a year earlier but increasing by 1 percentage point respectively from the end of 2004 and end-May. Narrow money (M1) reached RMB9.9 trillion yuan, increasing year-on-year by 11.3 percent, 4.9 percentage points lower from a year earlier, or down by 2.3 and 0.9 percentage points respectively from the end of 2004 and end-May. Cash in circulation (M0) increased year-on-year by 9.6 percent to RMB2.1 trillion yuan. The accumulated cash withdrawal in the first half of 2005 totaled RMB62 billion yuan, 10.8 billion yuan less than that recorded for the same period of 2004. The annualized month-on-month growth rate of M2 at end-June was 15.3 percent after seasonally adjusted, 1.2 percentage points higher from the end of May, while that of M1 rose to 13.1 percent, up by 1.2 percentage points from end-May. In general, money supply maintained steady growth.

2.      Deposits in financial institutions grew gradually

Outstanding deposits denominated in both local and foreign currencies in all financial institutions reached RMB28.3 trillion yuan at end-June, increasing by 16.8 percent from a year earlier. RMB deposits grew by 17.2 percent year-on-year to RMB26.9 trillion yuan. Cumulative increase of RMB deposits in the first half of 2005 totaled RMB2.6 trillion yuan, 423.7 billion yuan more than that recorded for the same period of 2004. Household deposits rose by RMB1.3 trillion yuan.  In particular, time deposits increased by RMB939.3 billion yuan, 371.6 billion yuan more than the increase recorded in the same period of last year; demand deposits grew by RMB348.9 billion yuan, 100 billion yuan less than the growth of the same period of 2004. Deposits of non-financial institutions climbed by RMB909.3 billion yuan, 62.2 billion yuan more than that recorded a year earlier. In particular, new corporate deposits totaled RMB548.9 billion yuan, RMB84.6 billion yuan less than the increase recorded in the same period of last year; fiscal deposits grew by RMB381.7 billion yuan, 129.7 billion yuan more than that recorded for the first half of 2004. New RMB deposits in June amounted to RMB629.2 billion yuan, 167 billion yuan more than the growth recorded a year earlier.

Outstanding deposits denominated in foreign currencies increased by 9.4 percent year-on-year to USD165.3 billion. Cumulative increase of foreign currency deposits in the first six months totaled USD10.5 billion, with the growth increasing year-on year by USD8.6 billion. New foreign currency deposits in June increased by USD4.4 billion, 3.1 billion more than the growth of the same period of 2004.

At end-June, excess reserve ratio of all financial institutions stood at 3.72 percent, decreasing by 0.03 percentage points from a year earlier, by 1.53 percentage points from the end of last year or at the same level as that recorded in May.

3.  Loans in all financial institutions grew rationally

At end-June, outstanding loans denominated in both local and foreign currencies in all financial institutions reached RMB19.9 trillion yuan, increasing year-on-year by 13.2 percent. RMB loans increased by 13.3 percent on comparable basis to 18.6 trillion yuan, down by 3.1 and 1.3 percentage points from a year earlier and the end of 2004 respectively, but up by 0.9 percentage points from end-May. New RMB loans extended in the first half of 2005 totaled RMB1.45 trillion yuan, with the growth increasing year-on year by RMB 24 billion yuan. New loans granted to households stood at RMB270.2 billion yuan, 148 billion yuan less than that recorded a year earlier. In particular, loans issued to support household business development grew by RMB150.9 billion yuan, RMB27.6 billion yuan less than the growth of the same period of 2004, with new short-term loans decreasing by RMB13.5 billion yuan to RMB147.2 billion yuan, and new medium and long-term loans decreasing by RMB14.1 billion yuan to RMB3.7 billion yuan; loans extended to support household consumption increased by RMB119.3 billion yuan, 120.4 billion yuan less than the increase recorded in the same period of last year, with short-term loans decreasing by RMB4.1 billion yuan, a deceleration of RMB24.1 billion yuan and medium and long-term loans increasing by RMB123.4 billion yuan, a deceleration of RMB96.4 billion yuan. New loans issued to non-financial institutions and other sectors reached RMB1.18 trillion yuan, 171.9 billion yuan more than that recorded for the first half of 2004, with new short-term loans and paper financing increasing by RMB166 billion yuan to RMB652.8 billion yuan and new medium and long-term loans increasing by RMB24.9 billion yuan to RMB518.3 billion yuan. The growth of RMB loans in June alone was RMB465.3 billion yuan, 183.2 billion yuan more than that recorded a year earlier.  

Outstanding foreign exchange loans in all financial institutions rose by 12.1 percent year-on-year to USD149.7 billion. Foreign exchange loans for the first six months grew by USD16.2 billion, an acceleration of USD0.4 billion. New foreign currency loans in June increased by USD1.8 billion, 0.7 billion less than the growth of the same period of 2004.

Adjusted for seasonal factors, at end-June, annualized month-on-month growth of RMB loans in all financial institutions reached 13.1 percent, up 3.7 percentage points from end-May. In general, all loans witnessed proper growth.

4.  Inter-bank market interest rates remained stable

In the first half of 2005, inter-bank market interest rate was basically stable. The monthly-weighted interest rate for inter-bank borrowing averaged at 1.46 percent, down by 0.94 percentage points from the end of last June, or by 0.09 percentage points from the previous month; and that for collateralized bond repurchase averaged at 1.10 percent, down by 1.31 and 0.03 percentage points from the previous year and the previous month respectively.

5. Foreign exchange reserves saw increase and RMB exchange rate remained stable

At end-June, foreign exchange reserves increased by 51.1 percent year-on-year to USD711 billion. Cumulative foreign exchange reserves in the first half of 2005 went up by USD101 billion, 33.7 billion more than that recorded a year earlier. Foreign exchange reserves in June alone grew by USD20 billion, with the growth increasing year-on year by USD8 billion. RMB exchange rate remained stable, being at 8.2765 yuan per US dollar, approximately the same level as that of end-2004.