REVIEW OF FINANCIAL PERFORMANCE IN APRIL 2004

In April the money supply increased relatively rapidly

At the end of April broad money (M2) reached 23.36 trillion yuan, with a year-on-year increase of 19.1 percent and an annualized month-on-month rise of 20.8 percent. Narrow money (M1) reached 8.56 trillion yuan, the year-on-year and annualized month-on-month rise being 20 percent and 9.6 percent. Cash in circulation (M0) reached 1.99 trillion yuan at the end of April. A net amount of 58.1 billion yuan was put into circulation in April, 24.6 billion more than the figure for the same period of last year.

RMB loans expanded rapidly, especially medium and long maturities

At the end of April, outstanding loans denominated in both local and foreign currencies in all financial institutions (including foreign-funded ones) increased by 20.4 percent to 18.12 trillion yuan. Outstanding RMB loans expanded 19.9 percent to 16.94 trillion yuan in April. In the first four months of 2004 RMB loans increased 1.0346 trillion yuan, up 29.8 billion yuan year-on-year. In April, incremental RMB loans were 199.5 billion yuan, 5.1 billion yuan more than the figure for the same period last year.

In terms of loan structure, incremental short-term loans and paper financing grew by 71 billion yuan in April, while medium- and long-term loans continued to rise rapidly by 122.3 billion yuan, thus constituting an widening spread with short term loans. At the end of April the balance of medium- and long-term loans stood at 6.18 trillion yuan, up 33.5 percent year-on-year, 19.3 percentage points higher than short-term loans and paper financing and 0.9 percentage points higher month-on-month.

At the end of April, outstanding foreign exchange loans increased year-on-year by 28.5 percent to US$142.2 billion. In the first four months, foreign exchange loans went up US$11.5 billion, up US$3.5 billion year-on-year.

Growth of RMB deposits in financial institutions slowed down

Savings deposits showed signs of out-flowing due to such factors as negative interest rates. At the end of April, outstanding deposits denominated in both local and foreign currencies in all financial institutions (including foreign-funded ones) reached 23.46 trillion yuan, increasing 19.1 percent from a year earlier. Among those, household deposits were 11.90 trillion yuan, while corporate deposits stood at 8.02 trillion yuan.

At the end of April, outstanding RMB deposits were 22.24 trillion yuan. The incremental RMB deposits were computed at 179.7 billion yuan, down 54 billion yuan year-on-year. Household deposits growth went down by 32.3 billion yuan year-on-year, while corporate deposits growth increased 63.9 billion yuan year-on-year

The interbank RMB trading shrank and the market interest rate rose significantly since mid-April

The interbank RMB market recorded reduced RMB trading with turnover dropping 14.2 percent to 1.07 trillion yuan in April. Market interest rates recovered markedly from the lift of required reserve ratio as well as the May Day holiday. The weighted average monthly interest rates for interbank funding and bond repo were 2.27 percent and 2.13 percent respectively, both up 20 bps month-on-month.

Since 2003 China has maintained rapid economic growth and rising prices, investment has over-heated in certain industries and areas, and loans of financial institutions have sharply increased. The central bank has therefore introduced a series of monetary policies to adjust the situation in the second half of 2003, strengthened its open market operations and reduced the base money issued for foreign exchange reserves. In light of the macro economy in the first quarter this year, the excessive expansion of investment is still out of effective control, and signs of rising prices remain evident. Money supply increased rapidly, incremental loans of financial institutions rose remarkably, and the potential of loan expansion is rather strong in financial institutions.

Under such circumstances, the central bank strengthened its open market operations and in March 2004 sterilized, for the first time, all the base money issued for the foreign exchange reserves. The central bank also decided to introduce differentiated required reserve ratios beginning April 25. Financial performance in April indicates that the trend of rapid growth in money supply and loans has not fundamentally changed, thus the central bank should adopt a moderately tight monetary policy and continue to strengthen adjustment by monetary policy.