BANKS in China extended 792.9 billion yuan (US$128 billion) in yuan-backed loans in April, while M2, the broad measure of money supply, grew 16.1 percent, faster than the official 13 percent annual target, central bank data showed yesterday.

New local currency loans fell last month from 1.06 trillion yuan in March, but stayed higher than 620 billion yuan in February, according to the People's Bank of China.

Total social financing - an indicator of overall liquidity which includes bank loans, bonds, equity financing, foreign direct investment, bankers' acceptances, direct company lending and external debt - was 1.75 trillion yuan in April, 783 billion yuan more than a year earlier, but 790 billion yuan less than in March.

"While new lending in yuan and overall social financing - a gauge of future investment activity - should slow by more than market expectations, they should remain solid enough to augur well for the economy," Dariusz Kowalczyk, senior economist at Credit Agricole in Hong Kong, said in an e-mailed research note yesterday before the data was released.

However, Wen Bin, a Bank of China analyst, argued that the real economy was still sluggish, with trade figures a bit inflated. "It's a tough call for policy makers given the dilemma that small- and medium-sized businesses can't get the cash they need and big enterprises don't know where to invest their money. Nevertheless they are the ones taking advantage of the ample market liquidity."

M2 gained 3.3 percentage points from a year earlier to 16.1 percent in April, adding evidence to substantial liquidity supply in the market.

"Growth in M2 was maintained at a higher level, above the 13 percent target in April. So monetary policy should remain moderate to hedge against excessive liquidity," Yan Yan of China Guangfa Bank said.