China money growth suggests central bank relaxing credit

China's annual growth in broad money supply picked up for the sixth straight month in August, reinforcing analysts' views that the central bank is relaxing more than two years of tightening credit to control growth.
China also said retail sales in August rose 12.5 percent from a year earlier, which was slightly below forecasts but sufficient to suggest consumption was strong.
The central bank tightened credit to try to prevent the world's fastest growing major economy from overheating, but analysts said the latest figures suggested authorities were fine tuning their policies.
"The government is worrying about the impact on exports from the currency reform in July and rising trade frictions, while high global oil prices could also affect economic growth," said Zhao Xijun, an economist with People's University in Beijing.
China revalued the yuan in July by 2.1 percent and has been negotiating with Europe and China to resolve trade spats over textile exports.
Growth in the broad M2 money supply rose 17.3 percent during the 12 months to August 31, the central bank said, well above expectations for a rise of 16.5 percent.
It also showed that annual growth in M2 money supply has accelerated each month since a 14 percent rise in March.
Retail sales came in slightly below expectations for an increase of 12.8 percent and indicated a slowdown from annual growth in July of 12.7 percent and of 12.9 percent in June.
"This is a little bit lighter than had been forecast, but not enough to dislodge the view that the Chinese economy is growing satisfactorily," said Tim Condon, head of financial markets research with ING in Singapore.
Other figures showed China drew nearly $38 billion in foreign direct investment in the first eight months of the year, down 3 percent from a year earlier. Foreign investment, a key driver of the energetic export sector, has eased this year after rising 14 percent in 2004 to hit a record $61 billion.
For August alone, foreigners directly invested $4.9 billion in Chinese non-financial assets, such as factories, down about 6 percent, but the volatility of the monthly figures means economists like to look at the cumulative figure to see the longer trend. China is trying to reduce its reliance on investment to drive overall economic growth, which has been above 9 percent in annual terms for eight straight quarters.