REVIEW OF FINANCIAL PERFOEMANCE IN MAY 2004

The growth in money supply slowed down. At the end of May, M2 reached 23.48 trillion yuan, increasing by 17.5 per cent year-on-year, 1.6 percentage points lower month-on-month. M1 grew to 8.68 trillion yuan with a year-on-year increase of 18.6 per cent, 1.4 percentage points lower than the previous month. Seasonally adjusted, the annualized month-on-month growth of M2 in May stood at 10 per cent. In general, the growth of money supply eased.

By the end of May, M0 reached 1.9 trillion yuan. Net cash withdrawals from circulation increased year-on-year by 50.4 billion yuan to 83.0 billion yuan this month. The rise was mainly due to the rapid growth of consumption this month.

The growth of loans by all financial institutions slowed down. At the end of May, outstanding loans denominated in both local and foreign currency in all financial institutions reached 18.25 trillion yuan, up 19 per cent year-on-year, and 1.4 percentage points lower month-on-month.

RMB loans amounted to 17.06 trillion yuan, up 18.6 per cent, an increase of 1.3 percentage points lower than the increase the previous month, and 3.1 percentage points lower than 2003. Seasonally adjusted, the annualized month-on-month increase was 11 per cent, down 7.5 percentage points from April. Medium and long-term loans went up by 32.7 per cent, maintaining a comparatively rapid growth.

Incremental RMB loans dropped 140.4 billion yuan year-on-year to 113.2 billion yuan in May. Included were 29.0 billion yuan of short-term loans and paper financing, down 125.3 billion yuan year-on-year; and 85.0 billion yuan of medium and long-term loans, down 5.4 billion yuan year-on-year.

At the end of May, outstanding FX loans increased by 26.6 per cent to US$144.1 billion, maintaining a rapid growth.

The growth of household savings deposit continued to level off. At the end of May, outstanding deposits denominated in both local and foreign currencies in all financial institutions (including foreign-funded ones) went up by 17.9 per cent to 23.7 trillion yuan, an increase of four percentage points lower than the figure a year ago.

At the end of May, outstanding RMB deposits stood at 22.5 trillion yuan, up 19.1 per cent; Seasonally adjusted, the annualized month-on-month growth was 11.3 per cent, down by 4.9 percentage points compared to April. Among those, RMB savings deposits reached 11.26 trillion yuan, up 16.9 per cent year-on-year; the rise had slowed for three months consecutively, dropping to the level of May 2002.

With a fall of 164.3 billion yuan year-on-year, incremental RMB deposits stood at 268.8 billion yuan, among which 43.5 billion yuan was from household savings deposits with a year-on-year drop of 72.3 billion yuan; the year-on-year growth of household savings deposits had leveled off for four straight months. Corporate deposits increased by 124.5 billion yuan this month, down 49.3 billion yuan year-on-year.

FX deposits were US$149.8 billion at the end of May, similar to the figure in 2003.

Interest rates remained stable in the interbank market. In May, the RMB trading volume in the interbank market was 844.4 billion yuan, with an average daily turnover of 46.9 billion yuan, down 3.5 percent month-on-month. The weighted average monthly rates for lending and repo were 2.21 percent and 2.17 percent respectively; the weighted average monthly rate for lending dropped by 0.06 per cent from the previous month, while that for repo rose by 0.04 per cent.

RMB exchange rate remained stable at 8.2769 yuan at the end of May.

Regarding current financial operations, a few points should be stressed. First, the continual negative interest rate of savings deposits in real terms, will, on the one hand, cause an out-flow of household savings deposits; on the other hand, it will broaden the mismatch between maturities of assets and liabilities in financial institutions. Second, the increased spread between enterprises' capital yields and loan costs will result in an increase in inventories and can do little to cool down investment intention. Finally, the widening gap between year-on-year rises of short-term loans and medium and long-term loans will trigger tension in working capital, thus impacting production of enterprises, SMEs in particular.