Macro-control Policies Proved Effective, and Financial Industry Performance Remained Healthy and Stable

(Source: PBC Monetary Policy Department)

In the first half of 2004, under the steering of the State Council, the People’s Bank of China (PBC) used various monetary policy instruments, including strengthened open market operations and differentiated required reserve ratios for financial institutions, to appropriately control the growth of base money and the faster than desired expansion of money and credit. Macro financial control polices have since proved quite effective as growth of money supply declined, the faster than desired expansion of loans were brought under control, deposits increased steadily, and RMB exchange rate remained stable. In general, appropriate control of aggregate money and credit has contributed to the healthy and stable performance of the financial industry. 

1.      The growth of  money supply declined steadily, falling within the PBC projected target

At end-June, broad money (M2) stood at RMB23.8 trillion yuan, increasing year-on-year by 16.2 percent, 4.7 percentage points lower from the end of last June, or down by 3.4, 2.9 and 1.3 percentage points respectively from 2003, the end of the first quarter of 2004 and end-May. Narrow money (M1) reached RMB8.9 trillion yuan, increasing by 16.2 percent, 4.1 percentage points lower from a year earlier, or down by 2.5, 4.1and 2.4 percentage points respectively from 2003, the end of the first quarter of 2004 and end-May. Cash in circulation (M0) increased year-on-year by 12.2 percent to RMB1.9 trillion yuan. The accumulated cash withdrawal in the first half of 2004 totaled RMB72.8 billion yuan, RMB40.7 billion yuan more than that recorded for the same period of 2003. The growth of M2 and M1 both showed a trend of steady decline, with the current figure falling within the PBC’s projected growth target of 17 percent.

2.      Deposits increased gradually

Outstanding deposits denominated in both local and foreign currencies in all financial institutions reached RMB24.2 trillion yuan at end-June, increasing by 17.1 percent from a year earlier. RMB deposits grew by 18.2 percent to 22.97 trillion yuan, with 2.2 trillion yuan added in the first half of 2004, 178.6 billion yuan less than that recorded for the same period of 2003. In particular, new corporate demand deposits totaled RMB352.1 billion yuan, RMB84.8 billion yuan less than the increase recorded in the same period of last year; household savings deposits increased by RMB1.01 trillion yuan, RMB52.2 billion yuan less than the growth of the same period of 2003. Foreign currency deposits climbed by USD1.9 billion, USD1.5 billion more than that recorded for the first half of 2003, to USD151.1 billion, with the growth rate approximately at the same level as that recorded a year earlier. In particular, cumulative increase of corporate deposits amounted to USD4.6 billion, USD6 billion more than the growth of the same period of 2003, while household savings deposits decreased by USD5.2 billion, a deceleration of USD6.7 billion.

3.      The faster than desired expansion of credit was reined in effectively

At end-June, outstanding loans denominated in both local and foreign currencies in all financial institutions reached RMB18.1 trillion yuan, increasing year-on-year by 16.7 percent. RMB loans increased by 16.3 percent on comparable basis to 17 trillion yuan, 6.8 percentage points lower from the end of last June, or down by 4.8,3.8 and 2.3 percentage points respectively from 2003, the end of the first quarter of 2004 and end-May. New RMB loans extended in the first half of 2004 totaled RMB1.43 trillion yuan, RMB350.1 billion yuan less than that recorded for the same period of 2003 on comparable basis (Cumulative increase of loans in the first half of 2003 amounted to RMB1.78 trillion yuan, RMB 951.1 billion yuan more than that recorded for same period of 2002.) In particular, the growth of loans in June alone was RMB239.6 billion yuan less than that of last June. In terms of loan structure, short-term loans cumulatively increased by RMB544.1 billion yuan, RMB168.4 less than that recorded for the first half of 2003; medium and long-term loans increased by RMB733.1 billion yuan, RMB73.8 billion yuan up from a year earlier; paper financing increased by RMB129.2 billion yuan, a deceleration of RMB212.8 billion yuan. Balance of foreign currency loans in all financial institutions rose by 24.6 percent on comparable basis to USD134.6 billion. Cumulative increase of foreign currency loans in the first half of 2004 amounted to USD15.6 billion, USD0.8 billion more than the growth recorded for the same period of 2003. In particular, short-term loans grew by USD7.89 billion, an acceleration of USD1.85 billion, medium and long-term loans grew by USD4.35 billion, USD0.31 billion more than that recorded for the first half of 2003, while on-lending of funds raised overseas decreased by USD620 million, USD380 million more than the decline recorded for the first six months of 2003, and trust loans decreased by USD120 million, USD920 million more than that recorded for the same period of 2003. In short, the faster than desired expansion of credit since 2003 has been reined in effectively, with the growth of aggregate credit currently standing at an appropriate level.

4.      RMB exchange rate remained stable

Official foreign exchange reserves increased by USD67.3 billion, USD7.2 billion more than that recorded for the first half of 2003, to USD470.6 billion at end-June, up 35.8 percent. RMB exchange rate remained stable, being at 8.2766 yuan per US dollar, approximately the same level as that of end-2003.

Sources and Uses of Renminbi and Foreign Exchange Credit Funds of Financial Institutions
2004-06                  Unit:RMB100million yuan
Funds Sources	Balance	Funds Uses	Balance
I. Total Deposits	242174.10	I. Total Loans	181046.84
1.Deposits of Enterprises	84068.71	1.Short-term Loans	90233.60
(1)Demand Deposits	58259.30	2.Long and Medium-term Loans	74230.25
(2)Time Deposits	25809.41	3.Trust Loans	2495.59
2.Savings Deposits	120443.17	4.Paper Financing	10834.30
(1)Demand Deposits	40907.94	5.Other Loans	3253.10
(2)Time Deposits	79535.23	II. Portfolio Investments	38199.69
3.Trust Deposits	2722.29	III. Position for Bullion&Silver Purchase	337.24
4.Other Deposits	34939.93	IV . Assets in International Financial Institutions	883.54
II. Liabilities to International Financial Institutions	524.91
III. Other Items	-22231.70
Total	220467.31	Total	220467.31
Note:1.Financial institutions referred to in this table include the People’s Bank of China, policy banks, State-owned commercial banks, other commercial banks, city commercial banks, UCCs, RCCs, rural commercial banks, TICs, financing companies, leasing companies, postal savings institutions and foreign-funded financial institutions. 2.The Bank of China, the China Construction Bank and the Bank of Communications transferred and wrote off part of their loans in June, thus their balance of loans slightly decreased from that of end-May.

Sources and Uses of Renminbi Credit Funds of Financial Institutions
2004-06                 Unit: RMB100 million yuan
Fund Sources	Balance	Fund Uses	Balance
I . Total Deposits	229670.82	I . Total Loans	169905.22
1. Deposits of Enterprises	79357.97	1. Short-term Loans	86150.57
2. Fiscal Deposits	8192.30	(1) Loans to Industrial Sector	23271.96
3. Deposits of GovernmentDepartments&Organizations	7204.72	(2) Loans to Commercial Sector	17152.36
4. Household Savings Deposits	113792.47	(3) Loans to Construction Sector	2574.03
(1) Demand Deposits	39617.79	(4) Loans to Agricultural Sector	10002.22
(2) Time Deposits	74174.68	(5) Loans to Township and  Village Enterprises	8068.46
5. Agricultural Deposits	5174.66	(6) Loans to Joint Venture  Enterprises	2448.19
6. Trust Deposits	2650.21	(7) Loans to  Privately-ownedEnterprises and Individuals	2035.03
7. Other Deposits	13298.49	(8) Other Short-term Loans	20598.32
II . Financial Bond	2604.80	2. Medium-term Working Capital	6567.09
III . Cash in Circulation	19017.58	3. Long&Medium-term Loans	63672.67
IV . Liabilities to International Financial Institutions	524.91	4. Trust Loans	2390.53
V . Other Items	-10022.17	5. Other Loans	11124.36
		II . Portfolio Investment	30389.94
		III . Position for Bullion&Silver Purchase	337.24
		IV . Position for Forex Purchase	40280.03
		VI . Assets in International Financial Institutions	883.54
Total	241795.97	Total	241795.97
Note:1.Financial institutions referred to in this table include the People’s Bank of China, policy banks, State-owned commercial banks, postal savings institutions, other commercial banks, city commercial banks, UCCs, RCCs, TICs, financing companies, leasing companies and foreign-funded financial institutions. 2. The Bank of China, the China Construction Bank and the Bank of Communications transferred and wrote off part of their loans in June, thus their balance of loans slightly decreased from that of end-May.

Sources and Uses of Foreign Exchange Credit Funds of Financial Institutions
2004-06                     Unit: USD100 million
Fund Sources	Balance	Fund Uses	Balance
I . Total Deposits	1510.69	I . Total Loans	1346.13
1. Deposits of Enterprises	569.16	1. Short-term Loans	493.31
2. Savings Deposits	803.55	2. Long&Medium-term Loans	482.13
3. Trust Deposits	8.71	3. Trust Loans	12.69
4. Overseas Deposits	35.12	4. On-lending of Funds Raised Overseas	176.97
5. Other Deposits	94.15	5. Paper Financing	13.43
II . Overseas Financing	193.74	6. Other Loans	167.60
III . Purchase and Sale of Forex	189.15	II . Portfolio Investment	943.61
IV . Inter-bank Transactions with Non-residents	51.66	III . Inter-bank Transactions with Non-residents	578.28
V . Other Items	922.78
Total	2868.02	Total	2868.02
Note: The Bank of China, the China Construction Bank and the Bank of Communications transferred and wrote off part of their loans in June, thus their balance of loans slightly decreased from that of end-May.

Sources and Uses of Renminbi Credit Funds of State-owned Banks
2004-06              Unit: RMB100 million yuan
Fund Sources	Balance	Fund Uses	Balance
I . Total Deposits	149030.09	I . Total Loans	110704.13
1. Deposits of Enterprises	46582.21	1. Short-term Loans	46446.36
(1) Demand Deposits	34966.23	(1) Loans to Industrial Sector	17235.31
(2) Time Deposts	11615.98	(2) Loans to Commercial Sector	14100.98
2. Fiscal Deposits	8095.91	(3) Loans to Construction Sector	1278.58
3. Deposits of GovernmentDepartments&Organizations	5787.05	(4) Loans to Agricultural Sector	1331.47
4. Household Savings Deposits	82702.43	(5) Loans to Township and Village Enterprises	1766.40
(1) Demand Deposits	29197.31	(6) Loans to Joint Venture Enterprise	1483.32
(2) Time Deposits	53505.12	(7) Loans to Privately Owned Enterprises and Individuals	770.28
5. Agricultural Deposits	441.64	(8) Other Short-term Loans	8480.02
6. Other Deposits	5420.85	2.Medium-term Working Capital	4996.64
II . Financial Bond	6953.19	3. Long&Medium-term Loans	52518.11
III . Inter-bank Transactions	4353.24	3. Other Loans	6743.02
IV . Cash in Circulation	19017.58	II . Portfolio Investment	22139.23
V . Liabilities to International Financial Institutions	524.91	III . Inter-bank Transactions	1382.99
VI . Other Items	-4360.05	IV . Position for Bullion&Silver Purchase	337.24
		V . Position for Forex Purchase	40071.83
		VI . Assets in International Financial Institutions	883.54
Total	175518.96	Total	175518.96
Note:1.State-owned banks referred to in this table include the People’s Bank of China, policy banks, State-owned commercial banks and postal savings institutions. 2. The Bank of China and the China Construction Bank transferred and wrote off part of their loans in June, thus their balance of loans slightly decreased from that of end-May.

Sources and Uses of Renminbi Credit Funds of Other Banks
2004-06                Unit: RMB100 million yuan
Fund Sources	Balance	Fund Uses	Balance
I . Total Deposits	34528.91	I . Total Loans	25707.67
1. Deposits of Enterprises	19990.96	1. Short-term Loans	15433.65
(1) Demand Deposits	12942.84	(1) Loans to Industrial   Sector	4361.43
(2) Time Deposits	7048.12	(2) Loans to CommercialSector	1876.50
2. Household Savings Deposits	6588.32	(3)    Loans to Construction   Sector	867.50
(1) Demand Deposits	2938.09	(4)    Loans to Agricultural   Sector	27.83
(2) Time Deposits	3650.23	(5)    Loans to Township and Village Enterprises	15.16
3. Agricultural Deposits	14.17	(6) Loans to Joint Venture   Enterprises	872.44
4. Other Deposits	7935.46	(7)    Loans to Privately Owned Enterprises and Individuals	542.30
II . Issuance of Financial Bond	308.39	(8) Other Short-term Loans	6870.49
III . Borrowing from the central bank	30.00	2. Medium-term Working Capital	1213.58
IV . Inter-bank Transactions	1632.08	3. Long&Medium-term Loans	6225.81
V . Other Items	108.78	4. Other Loans	2834.63
		II . Portfolio Investment	5714.69
		III . Deposits as Required Reserves	4682.98
		IV . Inter-bank Transactions	502.82
Total	36608.16	Total	36608.16
Note:1.Other banks include Bank of Communications, CITIC Industrial Bank, China Everbright Bank, Hua Xia Bank, China Min Sheng Banking Corporation, Guangdong Development Bank, Shenzhen Development Bank, China Merchants Bank, Shanghai Pudong Development Bank, Fujian Industrial Bank and Hengfeng Bank. 2. The Bank of Communications transferred and wrote off part of its loans in June, thus its balance of loans slightly decreased from that of end-May.

Monetary Aggregates
2004-06         Unit: RMB100 million yuan
	Balance		Year-on-year Change (percent)
Money and Quasi-Money (M2)	238427.49		16.15
Money (M1)	88627.14		16.16
Cash in Circulation (M0)	19017.58		12.15
Demand Deposits	69609.56		17.30
Quasi-Money	149800.35		16.14
Time Deposits	23542.04		24.76
Savings Deposits	113792.47		16.50
Other Deposits	12465.84		0.21
Note: Investors’ deposits for shares subscription are included in M2.

Exchange Rate, Gold and Foreign Exchange Reserves
Items	2004
	April	May	June
Exchange Rate:
一RMB yuan per SDR(end-period)
	11.9427	12.1573	12.1353
一RMB yuan per US dollar(end-period)
	8.2769	8.2769	8.2766
一RMB yuan per US dollar(Average)
	8.2769	8.2771	8.2767
Gold Reserves(in Ten Thousand Ounce)	1929	1929	1929
Foreign Exchange Reserves(USD100 million)	4490.17	4585.60	4706.39

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