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BIZCHINA / Weekly Roundup
Resolving China's excess liquidity
By Xin Zhiming (China Daily)
Updated: 2007-07-27 17:06
China's trade surplus jumped 83 percent to $112.5 billion from January to
June as its foreign exchange reserves mounted to $1.3 trillion.
Such figures have aroused concerns not only from its trade partners, but
those who are not sure whether policymakers can handle the increasing
liquidity.
Almost all agree that excess liquidity is flooding the Chinese market,
but there is no consensus how the conclusion has been drawn.
"It's very hard to estimate the excess liquidity," said Stephen Green,
senior economist with Standard Chartered Bank. "The measure I like the
best is M2/GDP ratio, which hit 160 percent (in China) three years ago,"
he told China Daily.
M2 is the broad measure of money supply, which includes all types of
deposits and cash. It exceeded 3.7 trillion yuan by the end of June,
according to the central bank.
By the end of last year, China's M2/GDP ratio rose to 165 percent, much
higher than Japan's 143 percent and 53 percent in the United States.
Related readings:
?Central bank raises interest rates, cuts interest income tax
?Survey: Rising food prices upset consumers
?Report: Liquidity high but manageable
?Special bond issue won't seriously impact liquidity?Securitization to
help China reduce excessive liquidity
Economists also use other indicators to assess the situation, such as the
gap between bank deposits and lending and the ratio of liquid assets to
overall banking assets, which all point to excess liquidity in China.
The excess liquidity has come, fundamentally, from two sources:
domestically, from accumulation of deposits; internationally, from inflow
of capital such as the foreign exchange reserves and speculative money,
according to Li Yang, director of the Institute of Finance and Banking,
the Chinese Academy of Social Sciences (CASS).
China's imbalance in its investment and consumption structure has led to
prolonged weak demand, which has exacerbated the pile-up of deposits,
said Zhuang Jian, senior economist with the Asian Development Bank (ADB)
in China.
The country's economy has been dependent on investment and exports in the
past decade, not domestic demand, although the government is trying hard
to increase consumption.
By the end of April, bank deposits held by the Chinese people amounted to
17.37 trillion yuan, nearly double the level five years ago.
(For more biz stories, please visit Industry Updates)
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