Record M2 Growth Signals Chinese Economic Recovery

China's broad measure of money supply (M2) grew at a record speed in September, leading experts to believe that the country's pro-growth policies are working and market liquidity is improving.

The People's Bank of China (PBOC), the country's central bank, said Saturday that China's M2 rose 14.8 percent in September from a year ago, accelerating from the 13.5-percent growth registered in August.

The growth rate was the highest since July 2011 and well above the central bank's annual target of 14 percent.

Qu Hongbin, chief economist with HSBC China, said the rapid growth of the money supply shows that market liquidity is improving and the government's fine-tuning of its monetary policies has taken effect.

The PBOC has cut the reserve requirement ratio for banks twice and lowered benchmark interest rates this year to buoy economic growth, which slowed to its slowest rate in more than three years in the second quarter.

China's economy expanded by 7.6 percent year on year in the second quarter, slowing from 8.1 percent in the first quarter.

The growth rate marked the sixth consecutive quarter of decline and was the slowest pace since the first quarter of 2009.

Outstanding yuan-denominated loans reached 61.51 trillion yuan (US$9.72 trillion) at the end of last month, up 16.3 percent year on year, the central bank said.

"Judging from the total volume of social financing, the overall liquidity at present is relatively eased and aggregate demand has seen signs of stabilizing," Qu said.

E Yongjian, a researcher with the Bank of Communications, noted that the structure of new yuan-denominated loans has improved.

In September, new mid- and long-term loans extended to enterprises stood at 127.7 billion yuan, accounting for 20 percent of total new loans last month, up from 17 percent in August, according to the central bank.

The structural change shows that the government's moves to speed up project approvals has driven up lending by commercial banks, especially mid- and long-term loans, E said.

E said enterprises' production demand is going to recover on the back of expanding fixed-asset investment, favorable export policies and the country's economic restructuring drive.

"The growth of value-added industrial output is likely to stabilize and rebound in the fourth quarter," said E.

China's exports rose 9.9 percent year on year to US$186.35 billion in September, hitting a record monthly high, according to figures released by the General Administration of Customs on Saturday.

China's foreign exchange reserves, the world's largest stockpile, rose to US$3.29 trillion at the end of September from US$3.24 trillion at the end of June, the PBOC said.

The official purchasing managers' index (PMI) improved to 49.8 percent in September from 49.2 percent in August, although it was still slightly below the 50-percent threshold that divides expansion and contraction.

"Since previous policies to boost growth have gradually taken effect, China's economic growth is likely to pick up speed in the fourth quarter," Qu said.

The government is scheduled to release its third-quarter GDP data on Oct. 18, which analysts expect to be below the second quarter's 7.6-percent increase.