China's broad measure of money supply, M2, which covers cash in circulation and all deposits, grew 21.6 per cent year-on-year in August, well above the target rate of 17 per cent. Financial institutions made Yn2,100bn in loans in the first eight months of this year, compared with Yn1,840bn lent for all of 2002. The loans have been used to finance exceptionally high growth in the motor vehicle, property development and steel production sectors, Business Weeklysaid.
A recent report by the State Information Centre showed that vehicle manufacturing capacity reached 5.5m units in the first half of the year, far exceeding market demand. Investment in property increased about 30 per cent and steel output grew 21 per cent.
This, together with recent increases in consumption and in prices, has raised fears that the economy is overheating. In response, the central bank has increased the amount of money that commercial banks must lodge with the central bank, from 6 per cent of total deposits to 7 per cent.
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