Part 1 Monetary and Credit Performance

1I. Monetary aggregates grew at a relatively rapid pace Broad money M2 stood at 31 trillion yuan at end-March, increasing by 18.8 percent y-o-y, up 4.7 percentage points over the same period of the previous year. Narrow money M1 reached 10.7 trillion yuan, increasing by 12.7 percent y-o-y, up 2.8 percentage points over the same period of 2005. The relatively fast growth of M2 was caused mainly by higher growth of savings deposits and corporate time deposits. At end-March, cash in circulation grew by 10.5 percent y-o-y to 2.3 trillion yuan. Net cash withdrawals in the first quarter totaled 56 billion yuan, 33 billion yuan more than during the same period of the previous year.

II. Deposits of financial institutions increased steadily

At end-March, outstanding deposits of all financial institutions (including foreign-funded financial institutions) denominated in both RMB and foreign currencies increased by 18.4 percent y-o-y to 31.8 trillion yuan, 1.98 trillion yuan more than at the beginning of the year, an acceleration of 678.1 billion yuan compared with the same period of the previous year. In particular, RMB deposits rose by 19.6 percent y-o-y to 30.6 trillion yuan, a growth of 1.9 trillion yuan from the beginning of the year and accelerating by 699 billion yuan. Foreign currency deposits totaled US$158.9 billion, decreasing by 2.6 percent y-o-y but US$6.6 billion more than at the beginning of the year, a deceleration of US$1.3 billion.

Corporations and households continue to prefer time deposits. Outstanding corporate RMB deposits increased by 15.8 percent to 9.8 trillion yuan at end-March, representing a growth of 270.6 billion yuan from the beginning of the year and an acceleration of 244.6 billion yuan over the same period in 2005. In particular, corporate time deposits increased by 229.9 billion yuan from the beginning of the year, an acceleration of 115 billion yuan over the same period in 2005. Savings deposits increased by 18.2 percent y-o-y to 15.3 trillion yuan, increasing by 1.18 trillion yuan

over the beginning of the year, 207.1 billion yuan more than growth in the same period of the previous year. In particular, time deposits increased by 846.3 billion yuan over the beginning of the year, 142.8 billion yuan more than the growth in the same period of 2005. Fiscal deposits increased by 24.3 percent y-o-y to 1 trillion yuan, representing an increase of 215.2 billion yuan over the beginning of the year, accelerating by 21.4 billion yuan compared with the previous year.

III. Loans of financial institutions expanded rapidly

Outstanding loans of financial institutions in both RMB and foreign currencies reached 21.9 trillion yuan at end-March, representing a growth of 14 percent y-o-y or an increase of 1.28 trillion yuan over the beginning of the year, accelerating by 455.4 billion yuan compared with the previous year. RMB loans grew by 14.7 percent y-o-y to 20.6 trillion yuan, an increase of 1.26 trillion yuan over the beginning of the year, accelerating by 519.3 billion yuan. Foreign currency loans rose by 6.5 percent y-o-y to US$154.6 billion, representing an increase of US$4.3 billion over the beginning of the year and a deceleration of US$6.5 billion.

RMB loans of financial institutions grew relatively fast in the first quarter due to the following factors. First, demand for credit continued to increase with the emergence of many new projects nationwide, accelerated growth of the total projected investment volume for the new projects, and the launching of important projects under the 11th ?ive-year Program.?Second, after share-holding reforms and going public, commercial banks increased their incentives to expand loans so as to increase the return on assets and shareholders?dividends with replenished capital and the strategy of ?arly lending gets the benefits.?Third, increased inflow of foreign exchange and abundant liquidity in the money market enabled commercial banks to expand loans.

In terms of loan destinations, working capital loans and capital construction loans witnessed relatively stronger growth. In the first quarter, short-term RMB loans and commercial paper financing for corporate working capital increased by 749.6 billion yuan, accelerating by 341.6 billion yuan. In particular, commercial paper financing increased by 310.5 billion yuan over the beginning of the year, accelerating by 203.9 billion yuan. Long- and medium-term RMB loans grew by 490.8 billion yuan over the beginning of the year, accelerating by 175.3 billion yuan, among which, capital construction loans increased by 284.9 billion yuan, accelerating by 111.1 billion yuan. In the first quarter, long- and medium-term loans of major financial institutions (including policy banks, state-owned commercial banks, joint-stock commercial

banks, and city commercial banks) mainly focused on the real estate, communication and transportation, energy, manufacturing, environment, and infrastructure industries. Additionally, the service industry witnessed relatively fast growth of credit, while the growth of consumer loans decelerated. In the first quarter, consumer loans increased by 43.4 billion yuan over the beginning of the year, 20.2 billion yuan less than growth during the same period in 2005, representing an increase of the outstanding balance by 9.1 percent y-o-y.

Broken down by institutions, RMB loans of all financial institutions grew rapidly. RMB loans of policy banks, the big four state-owned commercial banks, joint-stock commercial banks, city commercial banks, and rural financial institutions (including rural cooperative banks, rural commercial banks, and rural credit cooperatives) and foreign-funded financial institutions increased by 89.4 billion yuan, 600.5 billion yuan, 286.3 billion yuan, 41.5 billion yuan, 192.5 billion yuan, and 16 billion yuan respectively, representing an increase of 32.7 billion yuan, 275.2 billion yuan, 173.8 billion yuan, 9.5 billion yuan, 15.7 billion yuan, and 6.6 billion yuan over the same period of the previous year respectively.

IV. Base money grew at a stable pace, and the banking system had abundant liquidity

The outstanding balance of base money stood at 6.3 trillion yuan at end-March, representing an increase of 8.6 percent y-o-y but 179.2 billion yuan less than that at the beginning of the year. The excess reserve ratio of financial institutions stood at 3 percent at end-March, down 1.2 percentage points from the same period of 2005. In particular, the excess reserve ratio of the four state-owned commercial banks, joint-stock commercial banks, and rural credit cooperatives registered at 2.71 percent, 2.84 percent, and 5.91 percent respectively.

V. The interest rate for loans of financial institutions lowered somewhat

The weighted average interest rate of one-year RMB loans of commercial banks was 5.85 percent in the first quarter, which was 1.05 times the benchmark rate, down 0.22 percentage points from the previous quarter. In particular, the weighted average interest rate of fixed interest rate loans, which accounted for 86.03 percent of total loans, stood at 5.85 percent, down 0.23 percentage points from the previous quarter.

And the weighted average interest rate of floating interest rate loans, accounting for the other 13.97 percent, was 5.82 percent, down 0.2 percentage points from the previous quarter.

The statistical report of the PBC on the floating interest rate of financial institutions in the first quarter showed that, among the total loans of financial institutions, the proportion of loans charging the benchmark rate increased by 1.73 percentage points over the previous quarter, while the proportion of loans with the interest rate floating against the benchmark declined somewhat.