Beijing's M2 growth underestimates inflation pressure

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BEIJING, July 9 (CEIS): China needs "decisive" measures to rein in excessive demand and control inflation pressures as its M2 growth has understated the speed of monetary expansion, according to the latest report by Goldman Sachs, the US investment bank.
Growth rate of M2, a broad measure of money supply, edged down to 17.1 per cent in April 2007, while M3, which includes M2, deposits in non-bank financial institutions and securities issued by financial institutions, picked up to 19.2 per cent year-on-year.
"The M3 growth rate has been faster than that of M2 since the second quarter of 2006, likely reflecting the fast accumulation of capital-market-related financial assets," said Liang Hong, chief China economist with Goldman Sachs Asia.
Figures from the bank show that bonds issued to non-financial institutions grew 30 per cent year-on-year in April and non-M2 deposits by other financial institutions soared 63 per cent over the same period of last year.
In the past, M2 and M3 are used to maintain similar growth speeds due to relatively small changes in non-M2 liabilities in the country, said Liang.