The People's Bank of China (PBOC) yesterday disclosed major financial indicators for the end of 2003, an eventful year for the central bank, which conducted both radical and nuanced adjusting measures to ensure a healthy financial environment.

Observers said the figures indicated that the central bank deserved a high score for its performance as it achieved a money supply rate supportive to stable economic growth and overcoming huge appreciating pressure on the Chinese currency, the renminbi.

"A real remarkable phenomenon we saw last year was the emergence of more independent central bank performing its duty in the face of strong opposition," said Wang Yuanhong, a senior economist with the State Information Centre (SIC), referring to the central bank's decision in May to tighten credits for the real estate sector to squeeze the speculative bubble in the industry.

The central bank said that at the end of December, M2, the broad money supply measurement that includes cash in circulation and all sorts of deposits, grew 19.6 per cent over a year ago.

The figure is higher than the 14.7 per cent result recorded at the end of 2002.

But it was more moderate than the 21.8 per cent rate, the highest growth monthly rate for the year, registered in August.

M2 is closely related to loan growth, which grew by 21.4 per cent last year, so it can seen as the barometer for the adequacy of credit for firms and consumers.

"I think a M2 growth around 20 per cent is reasonable for China's economic situation and the central bank perfectly achieved it," said Yuan Gangming, an economist with the Chinese Academy of Social Sciences.

Many government officials and experts felt in the second half of 2002 the need to pursue a faster credit growth. The situation remained in 2003, when the effects of a five-year-old pump-priming fiscal package began to subside.

The central bank, though basically a buyer of such arguments, at some points of the year felt the need to cool down credit growth, especially in some sectors.

An announcement requiring commercial banks to refrain from financing speculative real estate developers and buyers shocked the industry. Real estate magnates, urban development officials and some economists warned the move could hurt an important engine of economic growth, which the government has been keen to foster since 1998.

The central bank, which spun off its banking regulatory function and began to focus on monetary policy in March, was not moved.

"It really showed the image of an independent institution on this issue," Yuan said.

China's rapid export growth and speculators smuggled hot money into China betting on an appreciating renminbi also drove up credit growth.

Under China's foreign exchange administration system, the central bank has to buy in foreign exchange with renminbi, when foreign exchange at the market is abundant, to keep the yuan's exchange rate stable.

This led to unwanted significant increase of money supply.

In August, the PBOC raised the required reserve ratio for the commercial banks from 6 per cent to 7 per cent, which decreased money supply for a much broader spectrum of industries.

"The central bank has the tools to further cool down money supply growth, but it did not," Yuan said.

Instead, it took some relaxing measures to help some financial institutions which bore the brunt of the impact from the reserve ratio hike. For example, it bought in treasury bonds with renminbi sold by banks for money.

"The central bank adopted a real preemptive measures to avoid some bad trends, such as overheating in the property sector and credit crunch for the institutions, from evolving into full play," said the SIC's Wang.

The experts said a consistently worrying indicator for last year came from the category of personal deposits, which grew 19.2 per cent last year. The figure is seen as being too high and does not bode well for growth of consumption.

This reflected problems such as the limited coverage of the social security system, which prompted residents to save money to cover unexpected costs.

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