China's forex reserves hit record

By Xin Zhiming (China Daily)
Updated: 2008-10-15 07:18

The country's foreign exchange reserves reached a record of $1.91 trillion at the end of September, an increase of 32.92 percent from the same period last year, the central bank said Tuesday.

A total of $377.3 billion was added to the foreign exchange reserves in the first three quarters, the People's Bank of China said on its website, adding that in September alone, the figure rose by $21.4 billion.

China's soaring trade surplus is a major contributing factor to the soaring reserves.

The General Administration of Customs said a day earlier that the country's trade surplus reached $180.9 billion in the first three quarters, narrowing 2.6 percent from a year earlier.

But the broad measure of money supply, or M2, increased 15.3 percent year-on-year by the end of September, the lowest pace since May 2005, indicating the weakening economy is dragging down demand for capital, analysts said.

M2 growth was 0.7 percentage point lower than in August.

"The overall demand for capital has dropped as the economy weakens," said Guo Tianyong, economist with the Central University of Finance and Economics.

"The money supply figures are in line with our expectations," said Dong Xianan, macroeconomic analyst with China Southwest Securities. "People expect the economy to continue to slow and therefore are reluctant to start new projects."

The Chinese economy expanded by 10.4 percent year-on-year in the first half of this year, down from 11.9 percent for the whole of last year. It slowed to 10.1 percent in the second quarter and with the global financial turmoil forecast to further reduce demand for China's exports, analysts said the country may face tougher times in the coming months.

However, lending growth was 14.5 percent in September, slightly up from August mainly because the lending policy was relaxed in the previous months.

Xinhua contributed to the story