China May Set Lowest-Ever Growth Target for Money Supply

China is likely to set its target for money growth next year at around 9%, the lowest ever, as the country works to rein in the accumulation of debt and prevent the growth of asset bubbles, the official China Daily reported Monday.

The report comes after top leaders at the Central Economic Work Conference — a key annual meeting to chart major economic policies for the coming year — vowed last week to impose a tighter grip on the money supply in 2018 from this year. Policymakers listed fending off major risks, especially financial risks, as their top priority over the next three years.

Financial risks have become the largest threat to China’s economic stability in the medium and long term, Li Yang, director of the National Institution for Finance and Development under government think tank the Chinese Academy of Social Sciences, said in the China Daily report.

Li was among the economists involved in high-level policy discussions before the conference last week, the report said.

The expansion in China’s M2, a broad measurement of the money supply that includes cash in circulation and all deposits, has slowed sharply this year as regulators crack down on risky operations in the financial sector, especially those related to shadow banking and wealth management products.

M2 grew 9.1% in November, up slightly from 8.8% in October, which was the slowest pace since records began in 1996. It remained below the government’s target of a growth rate of around 12% this year.

Yi Gang, a deputy central bank governor, on Saturday said this year’s decelerating M2 growth has been a result of the financial deleveraging campaign. “(The slowdown) mainly reflected that the leverage ratio within the financial sector has been controlled,” Yi said at a conference.

“The 9.1% growth rate for M2 is normal,” he added.

Contact reporter Fran Wang (fangwang@caixin.com)