M2 growth triggers worries

Central bank can handle economic effects: experts

China’s M2, a broad measure of money supply, has recently reached a level equivalent to that of the US and the eurozone combined, which has sparked market worries about inflation. But experts said that although such risks do exist, the problem is not likely to become severe.

“In other countries a high M2 money supply could easily lead to commodity price inflation, but in China I see no signs of this happening in the short term. Most of the money is still [in banks],” Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Sunday.

Data from the People’s Bank of China, the country’s central bank, showed on April 13 that China’s M2 money supply had reached 173.99 trillion yuan at the end of March, equivalent at the time to roughly $27.67 trillion.

The M2 money supply in the US and the eurozone reached $13.9 trillion and 11.28 trillion euros ($13.7 trillion) by the end of March, data from the New York-based financial data website tradingeconomics.com showed.

The rapid growth in China’s money supply has been accompanied by worries about inflation, Zhou said. At a recent Baidu Tieba forum, one person commented that China might become “the next Zimbabwe or Venezuela” – both countries have suffered heavily from rampant inflation in recent years.

“At least for now, commodity prices are still safely under control,” Zhou said.

China’s rising money supply is partly a result of an increase in loans, particularly a few years ago when the domestic economy was developing rapidly, Liu Xuezhi, a senior researcher with the Bank of Communications, told the Global Times on Sunday.

Zhou noted that soaring housing prices have also pushed up money supply. But Liu said that government policy in recent years has tried to rein in debt and focus more on quality rather than speed of economic growth. This has caused the growth of M2 to slow down, Liu noted.

Zhou also said that even if inflation rises, the central bank still has enough tools to keep the situation under control.