The growth of loans significantly slowed during the first seven months of this year, which indicates the government's economic macro control measures are taking effect, the People's Bank of China (PBOC) said Wednesday.

By the end of July, outstanding loans of all financial institutions stood at 18.1 trillion yuan (US$2.18 trillion), up 15.9 per cent on a year-on-year basis. The growth rate compared to 23.2 per cent registered during the same period in 2003, the central bank said in a monthly report.

Consequently, money supply growth also slowed down. M2, the broad measurement of money supply, grew 15.3 per cent during the January-July period, which was 5.4 percentage points slower than the correspondent period of last year.

The PBOC is the key advocate for the ongoing round of macro economic adjustment, which started late last year. Since then, leading central bank officials have been warning against new structural problems in the economy and said that the current growth rate of Chinese economy was not sustainable.

The nation's gross domestic product grew 9.1 per cent last year and 9.7 per cent during the first half of this year. Consumer price index, the key barometer for inflation, increased by 2.8 per cent and 4.4 per cent during the first and second quarter respectively. In particular, it climbed 5 per cent in June.

Since the beginning of the year, the central government had tightened the reins on investment growth. The banking sector, partly because of the central bank's calling, also became more cautious in granting new loans.

"The unstable, unhealthy elements in the economy have been contained," the PBOC report said yesterday.

The country's fixed asset investment soared 53 per cent during the first two months of the year, but the growth rate gradually dropped to 23 per cent in June due to the cooling-down measures.

Although the economic growth rate reached an even higher level during the first half of 2003, many believed it would subside in the second half as the effects of the restrictive steps play in full.

In the central bank's monetary policy report published on Monday, PBOC analysts predicted that the economic growth will "decline slightly" during the third quarter of the year.

They also predict that CPI might peak during the July-September period, but would begin to dip during the final three months of the year.

The central bank also revealed that the growth of personal savings declined in July. Nationwide new private savings totalled 46 billion yuan (US$5.54 billion) in the month, as compared to 92 billion yuan (US$11 billion) in the same month of last year.

Source: China Daily