Monday, December 15, 2008

China plans to raise money supply by 17% to grease economy's wheels

By Jason Subler and Langi Chiang, Business Report, 15/12/2008

Beijing - China aimed to increase its money supply by 17 percent next year, the country's cabinet said yesterday, as it unveiled a broad blueprint for easing financial conditions to help grease the wheels of the world's fourth-largest economy.

The directive comes on the heels of a 4 trillion yuan (R6 trillion at Friday's exchange rate) stimulus package announced last month, as well as repeated interest rate cuts by the central bank.

The new target for growth in the broad M2 measure of money supply marks a substantial increase from the 15 percent pace in the year to October.

Among other measures to achieve that end, the cabinet said the central bank would stop issuing three-year bills and reduce its issuance of one-year and three-month bills, providing more liquidity in the financial system The order comes amid growing concerns economic growth could fall below the 8 percent pace considered necessary to create enough jobs.

The directive mandated a host of policy changes aimed at making it easier for companies and investment projects to obtain the credit they need, though most of them will have to be followed up with more specific implementation rules.

The cabinet said it would give banks more flexibility on the minimum allowable lending rates they could charge and it could loosen other rules to give them more leeway in making lending decisions.

It reiterated its long-standing commitment to making the yuan's exchange rate more flexible.