China's money supply growth is unlikely to fall significantly in the second half of this year, as long as the economy and fixed-assets investment maintain roaring double-digit growth, experts said.

The People's Bank of China, the central bank, had set a growth target of 16 per cent for its M2, a broad measure of money supply that covers cash in circulation and all deposits, this year.

But the M2 had risen 18.43 per cent year-on-year to 32.28 trillion yuan (US$4.03 trillion) by the end of June.

It grew 18.9 per cent and 19.1 per cent in April and May respectively.

The M1, an indicator of liquidity which covers cash in circulation and current account deposits, rose by 13.94 per cent year-on-year to 11.23 trillion yuan (US$1.4 trillion) by the end of June, according to the central bank.

It grew 12.5 per cent and 14 per cent in April and May respectively.

Outstanding local currency loans in all financial institutions stood at 21.53 trillion yuan (US$2.69 trillion) by the end of June, up 15.24 per cent year-on-year and 7.3 percentage points lower than the previous month.

New local currency lending in June increased by 394.7 billion yuan (US$49.3 billion), compared to 209.4 billion yuan (US$26.1 billion) in May.

The surging foreign exchange reserves and the sizzling economy, economists say, are the two major factors propelling China's robust money supply.

"The ballooning forex reserve is a major factor behind the dynamic growth of the money supply," said Li Yongsen, an economist at Renmin University of China.

The foreign exchange reserve, driven by the mounting foreign trade surplus and the inflow of foreign direct investment, had surged to a record US$941.1 billion by the end of June, the central bank said last week.

"The central bank has to release new money to mop up the excess US dollars in the marketplace and enforce a floating band for the renminbi, which is driving up money supply growth," Li said.

As the high growth of the forex reserve is unlikely to slow in the second half of this year, Li said, the same pressure to mop up excess US dollars is expected to remain unless the renminbi appreciates significantly.

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