China’s government may at last be getting a grip on its banks

THE arrival of rain and snow on China’s parched northern plain has raised hopes that the country’s crop of winter wheat will fare better than feared. Food prices, which rose by about 11% in the year to February, have made a big contribution to China’s consumer-price inflation, now running at 4.9%. But if drought is responsible for some of China’s price pressure, a deluge of credit is to blame for the rest. So China-watchers were quick to welcome a turn in the monetary weather this week.

The country’s broad money supply (M2), which includes currency and a variety of bank deposits, grew by 15.7% in the year to February, slower than expected. Monetary aggregates are an important target for the People’s Bank of China (PBOC), the country’s central bank, much as they were for Western central banks in the heyday of monetarism. Unfortunately, these targets can be just as elusive in China as they proved to be elsewhere: M2 has exceeded the government’s intended limit in nine of the past ten years. But February’s figure will give the PBOC fresh hope of remaining within its 16% target for this year. ...