December 7, Newly added loans may become the engine of broad money supply (M2) next year as banks’ foreign exchange purchases are expected to remain weak, the China Business News reported on Wednesday.

The M2 growth target next year for China, which needs RMB 9-10 trillion ($1.4-1.6 trillion) of new lending to fulfill the growth due to an expected decline in newly added foreign exchange purchases next year, could be 14%, China International Capital Corp. (CICC) said in its latest report.

Sheng Hongqing, an analyst at China Everbright Bank, told the paper that China may add RMB 8 trillion of new loans in 2012.

Central bank data showed Chinese banks’ foreign exchange purchases fell by RMB 24.9 billion in October, the first negative growth since December 2007.

For a long time, China’s M2 has consisted mainly of newly added loans and foreign exchange purchases, the paper said. Moreover, the fast increase in foreign exchange purchases has been the major driving force of the nation’s M2 growth.

The CICC report said the country’s foreign exchange purchases would linger at lower levels for long periods in the future in view of the continuous contraction of the nation’s trade surplus, a sluggish property market and the deteriorating debt crisis in the euro zone.

In 2012 China’s foreign exchange purchases are expected to reach RMB 1.5 trillion, compared with the RMB 2.9 trillion added during the first 10 months of this year, the brokerage firm wrote in its report.

“Next year’s M2 growth is dependent on newly added loans, similar to the situation in 2009,” the report said.

Source:21cbh.com