Data for the first half of the year on the country's economic performance has recently been released. People are concerned about China's economic situation and whether the macro-control policies in financial and real estate sectors are effective. Have more jobs been created, and is the process of building a new socialist countryside making progress? How will the stock market reforms be carried out? Going forward, People's Daily will publish a series of commentaries on hot topics in economic development and provide analysis of the situation.

People's Daily is focusing on financial macro-control policies.

Last Friday, the central bank or People's Bank of China issued figures for the country's financial performance in the first half of the year. To many people's relief, monetary credit loans (or M2) increased at a slower speed in June, 18.43 percent, 0.6 percent lower than in May. This was also the first time since February that the increase in M2 had slowed down.

This means macro-control policies have achieved some positive results and that financial credit loans may be experiencing positive changes.

However, credit loans are still operating at a high level. Although the increase in M2 is slowing down, it is still 2.43 percent higher than the target of 16 percent. RMB loans have increased by 394.7 billion yuan, 70.6 billion less than the previous month, accounting for 87% of the increase target for the whole year.

Further analysis shows that the real factors leading to the rapid increase of monetary credit loans have not been controlled or eliminated, and that the basis for the diminishing credit loans is not solid. The fast growth of monetary supply was due to the fast growth of trade surplus and foreign investment. As foreign currency continually flows in, the central bank can only passively buy large quantities of foreign currency to keep the RMB steady at a reasonable level. While the bank has been accumulating forex reserves, it has put an equivalent amount of RMB into the market so that the monetary supply has increased drastically. Due to China's rapid economic development, almost the highest national saving rate in the world, the growing momentum of trade surplus and foreign investment should last for a relatively long period of time. Therefore it is hard to see forex reserves and monetary supply automatically slowing down.

The impulse to invest is still very strong in some provinces and the commercial banks are under pressure to lend more money. State-owned commercial banks have sufficient capital for loans after being publicly listed on the stock market because of the increasing interest rates. The gap between savings and loans has become the driving force behind issuing more loans. At present, the supply and demand for loans is great, so credit loan growth is likely to increase if it is not contained properly.

However, if monetary credit loans increase quickly for a long time, it will not only increase financial risks, but also cause economic heat and inflation. Therefore, the next step in financial macro-controls shouldn't be relaxed. The macro-control method should be scientific, forward-looking and effective. How will the growth momentum of monetary credit loans change? It is still not clear and needs to be observed, supervised and analyzed frequently. Meanwhile, the government should use more flexible monetary policy tools, such as the market, to strengthen pre-adjustment and micro-adjustment.

The rapid growth of forex reserves is the source of the fast monetary credit loans. The government should use tax as a lever to optimize the export structure and improve the utilization of foreign investment, finding a balance between international income and expense and reducing the inflow of foreign currency. They should also revise and improve the flexibility of the RMB exchange rate.

This will help more money reach the people instead of the government, and will allow more people and non governmental organizations to hold more foreign currency and alleviate the pressure on the government's forex reserves. Some experts also argue that the inflow of foreign currency is due to the expectation of the appreciation of RMB, therefore stabilizing the RMB exchange rate is very important.

It's also necessary to truly implement the six provisions of the new foreign exchange management policies issued in April by the central bank.

By People's Daily Online