Theperformance of financial industry remained healthy and stable in July andmacro-control policy continued deliver expected results as reflected in thatgrowth of money supply and loans moderated, expansion of medium and long-termloans markedly contracted, RMB deposits continued to increase at a normal pace,RMB exchange rate and inter-bank market interest rates remained stable.

 

1.      Moneysupply slowed down

According to statistics, broad money (M2) increasedby 15.3 percent YOY to RMB23.8 trillion yuan at end-July, with the growth rate 5.4percentage points lower than that of 2003, or down by 0.9 percentage pointsfrom end-June, with the annualized month-on-month growth equal to 6.5 percentafter the deduction of seasonal factors. Narrow money (M1) reached RMB8.8trillion yuan at end-July, increasing by 15 percent, which was 5 percentagepoints lower compared to 2003, or 1.2 percentage points lower from end-June. Cashin circulation (M0) stood at RMB1.9 trillion yuan at end-July. Net cashinjection in July alone amounted to RMB39.2 billion yuan, RMB1.4 billion yuanless than the same period of 2003. In general, money supply continued todecelerate.

 

2.      Overalldeposits continued to increase while growth of household savings depositsdropped

Outstanding deposits denominated in both local andforeign currencies in all financial institutions (including foreign-fundedones) reached RMB24.3 trillion yuan at end-July, representing a YOY increase of16.8 percent or 5 percentage points lower from a year earlier. RMB depositsrose by 17.7 percent to RMB2.3 trillion yuan, with annualized month-on-monthgrowth equal to 15.1 percent after the deduction of seasonal factors, which was4.6 percentage points higher than that of June. In particular, householdsavings deposits reached RMB11.4 trillion yuan, increasing by 15.9 percent, 3.6percentage points lower than 2003. New RMB deposits in July totaled RMB52.2billion yuan, decelerating by RMB69.3 billion yuan YOY. In particular, newhousehold savings deposits reached RMB46.1 billion yuan, decelerating byRMB45.6 billion yuan. Household savings deposits continued to decelerate fortwo reasons. First, financial assets portfolio of households went change duringthe first half of 2004, by added investment in mutual funds and governmentbonds; second, consumption was tending upward. Corporate deposits declined byRMB115.5 billion yuan, decelerating by RMB85.1 billion yuan on year-on-yearbasis.

 

Outstanding foreign currency deposits increased byUSD2.6 billion from a month earlier to USD153.7 billion in July, acceleratingby USD3.7 billion on year-on-year basis.

 

3.      Growthof bank loans continued to slide, with large deceleration of medium andlong-term loans

Outstanding loans denominated in both local andforeign currencies in all financial institutions (including foreign-fundedones) increased by 15.9 percent on comparable basis to RMB18.10 trillion yuanat end-July, 7.3 percentage points lower than the growth recorded a yearearlier. Outstanding RMB loans reached RMB16.99 trillion yuan, increasing by15.5 percent on comparable basis, which was 7.9 percentage points lower thanthe growth recorded for 2003. The annualized month-on-month growth was equal to8.2 percent, 0.4 percentage points higher than that for June. In particular,medium and long-term loans went up by 29 percent YOY on comparable basis, 1.7percentage points lower than the growth recorded at end-June.

 

RMB loans in all financial institutions decreased byRMB1.9 billion yuan compared to the previous month. If NPLs write-off isaccounted for, new RMB loans of this July totaled RMB26.5 billion yuan,decelerating by RMB79.3 billion yuan from a year earlier. Based on pastexperience, July generally is a month of slow loan growth. In terms of loansstructure, short-term loans dropped by RMB18.4 billion yuan, decelerating byRMB25.5 billion yuan on year-on-year basis; paper financing declined by RMB1.4billion yuan, accelerating by RMB2.33 billion yuan; medium and long-term loansclimbed by RMB50.4 billion yuan, representing a significant deceleration of thegrowth of RMB53.4 billion yuan.

 

At end-July, foreign currency loans totaled USD133.8billion, representing a YOY acceleration of 22.8 percent on comparable basis.RMB exchange rate remained stable, being at 8.2769 yuan per US dollar.

 

 

4.      Interest rates in inter-bank market remained stable

Turnover of RMB transactions in the inter-bank marketamounted to RMB1.1309 trillion yuan in July, with daily average volume totalingRMB51.4 billion yuan, decreasing by 6.1 percent compared with the previousmonth. Monthly-weighted average interest rates in inter-bank borrowing marketand pledged bond repurchase market stood at 2.33 percent and 2.34 percentrespectively, both registering a decline of 0.07 percentage points comparedwith June.