Financial statistics published by the People's Bank of China on November 12, showed that by the end of October, China's broad money supply (M2) had risen to 93.64 trillion yuan, indicating a year-on-year growth of 14.1 percent. GDP growth, on the other hand, has not exceeded 8 percent during that same period.

Chinese Renminbi(RMB) [File photo]

Calculations prove that according to the Central Bank's target of a 14 percent growth in money supply, the broad money supply will exceed 97 trillion yuan by the end of this year. By the end of the first quarter next year, this number is estimated to approach or even exceed 100 trillion yuan. The number, which was merely about 47.52 trillion yuan in late 2008, has doubled over the past four years.

Since 2009, the oversupply of money has become a constant issue of debate among people from all walks of life.

"We have certainly witnessed a rapid growth in money supply and an excessive supply of money since 2009," said Zhu Haibin, chief economist with JP Morgan in China told China Economic Weekly.

Facing social doubts, China's central bank governor Zhou Xiaochuan retorted in his new book that many studies have shown that there is no necessary connection between money supply control and the central bank's goal of stabilizing prices. According to Zhou, foreign scholars may have simply discarded the index money supply.

"Governor Zhou's comment cannot explain how the central bank determines the money supply since prices are undoubtedly an important criterion in setting the broad money supply (M2) standards for next year," one chief economist of a famous agency told China Economic Weekly.

Several people who all have at one time or another worked with the central bank, told China Economic Weekly that the central bank determines the money supply on the basis of the formula: M2=GDP+CPI+X, that is, nominal economic growth plus a variable X. The existence of this variable X is mainly due to the monetization of properties (mainly that of land).

In 2011, China's M2/GDP ratio reached 181 percent, compared to the United States' 86 percent. These data indicated that China's oversupply of money has become rather serious, according to a number of experts, including Zhou Qiren, Dean of the National School of Development and former Monetary Policy Committee (MPC) member of the central bank.

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