The massive stimulus injected by the Chinese government into the Chinese economy has been in part diverted to assets and stocks markets as we already know.
However, all this money is now causing some inflationary worries in the Chinese government, just as the global economies seem to be slowly accumulating signs of stabilization. The decision was made by the Chinese authorities to let the reins loose on the crazy bull of lending and this is causing economists to wonder if it will be possible to still rein in the money supply, which is expected to grow by 25 % this year.
“Measures” are announced for Q4 (which increasingly becomes the quarter of reckoning for the global economy), although these are not specified. So, for a while, speculation and gaming can continue on the wild Chinese markets which have been alternating quite violent swings from day to day.
China’s M2, the broadest measure of money supply, is expected to expand 25 percent this year, much higher than its 17 percent target, China International Capital Corp.’s chief economist said in a report on Aug. 27.
The growth rate will slow to 20 to 22 percent in 2010, Ha Jiming said.
The People’s Bank of China said on Aug. 25 that the M2 growth target for 2009 was 17 percent.
M2, which covers cash in circulation and all deposits, rose 28.4 percent year-on-year to 57.3 trillion yuan at the end of July, according to the People’s Bank of China. M2 expanded 17.8 percent in 2008 and 16.6 percent in 2007.
Total bank lending for the year will be about 10 trillion yuan, Ha said.
Banks issued 7.4 trillion yuan in new loans in the first half, three times the amount for the same period last year.
“The government will maintain its loose policies in the third quarter,” Ha said.
The government is likely to make substantive adjustments to its economic policies in the fourth quarter, he said, without elaborating.
1 yuan = 14 U.S. cents
