SLOWER growth in China’s money supply will become common as the country continues its deleveraging efforts under tighter regulations.

By the end of last year, the broad measure of money supply, or M2, which covers cash in circulation and all deposits, rose 8.2 percent to 167.68 trillion yuan (US$26 trillion). This was the slowest pace since 1994 when it was calculated the first time in China, according to data from the People’s Bank of China.

The lower-than-expected figure came mainly because of a squeezing of money holdings in the financial sector, which dragged down about 0.7 percentage points of the M2 growth rate, said Xie Yaxuan, an economist at China Merchants Securities.

According to the central bank, the M2 growth rate for the financial sector was 7.2 percent last year, and the relatively slower pace could indicate capital shortage for banks’ liabilities after the financial regulator issued a series of new rules to tighten supervision on shadow banking business, said Xie.

Ruan Jianhong, head of the central bank’s survey and statistics division, said last week that current monetary conditions and sound economic performance provided good timing for further deleveraging.

“In the future, slower M2 growth than before will become the ‘new normal,’ as the country’s deleveraging process deepens and the financial sector gets back to the function of serving the economy,” Ruan said.

Ming Ming, an analyst with Citic Securities, said that this year, the M2 is expected to stay between 8 and 10 percent, considering the new financial regulations, especially those on overseeing the asset and wealth management products, may constrain liquidity in the financial sector.

In November last year, Chinese regulators released draft guidelines that will unify rules covering asset management products issued by all types of financial institutions to curb financial risks and reduce the leverage ratio.

Amid the deleveraging process and tougher financial regulations, the slower growth indicated that capital usage by commercial banks has become better regulated with less funds circulating inside the financial sector and less derivative deposits, according to Ruan.

(SD-Agencies)