China has printed a huge amount of money in the past ten years to meet the needs of its growing economy. Picture: A commercial district in Shanghai. (File Photo/CFP)
China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade, according to the Chinese-language Southern Weekly.
Furthermore, China continued to be the largest money-supplying country in 2010 as its M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier, said the weekly.
This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period.
As of the end of November last year, China's broad money supply rose to 71.03 trillion yuan (US$10.71 trillion) from a year earlier, larger than that of the US and Japan, while its M1, a narrower measure of money supply, increased 22.1% to 25.94 trillion yuan (US$3.91 trillion), according to statistics from the central People's Bank of China.
In the past ten years, China's M2 has expanded at the average rate of 18.8% a year, despite the fact that the country, which has an average gross domestic product (GDP) growth rate of 10.9% and an average inflation rate of 3.2%, needs only 14.1% of growth in money supply to sustain its economic development.
This has driven China's M2-to-GDP ratio in the past decade to the highest in the world.
"In the past 30 years, we have used excessive money supply to rapidly advance our economy," said Wu Xiaoling, vice chairman of the Financial and Economic Affairs Committee of China's National People's Congress.
The reason for the large increases in China's money supply is related to its exchange rate mechanism. According to the country's regulations, for every US$1 increase in foreign exchange reserves, China's central bank has to release the equivalent amount of yuan into the economy.
The annual growth of China's foreign exchange reserves jumped to 28% after it joined the World Trade Organization in 2001 and by the end of September 2010, China's foreign exchange reserves were 18.3 times the 1998 amount. Japan's foreign exchange reserves during the same time last year were less than half of China's.
China has no choice but to print more money in the face of its massive foreign exchange reserves, said the Southern Weekly, adding that the excessive money supply that has resulted is a phenomenon unprecedented in the history of the world economy.
The excess money flows into the property market and any assets available for making investments, causing land, housing and commodity prices to surge.
Since 2003, land prices in Beijing and its surrounding areas have increased nine times. Furthermore,the prices of approximately 70% of agricultural produce in 36 cities in China have risen since July last year.