China said Tuesday its foreign exchange reserves hit a record high at the end of 2010 as new loans topped an official target, highlighting Beijing's difficult task of stemming a flood of liquidity. The country's stockpile of foreign currencies, already the world's largest, expanded 18.7 percent from a year earlier to $2.847 trillion at the end of December, the central bank said in a statement.
New loans issued by state-owned banks in 2010 reached 7.95 trillion yuan ($1.2 trillion), exceeding the government's full-year target of 7.5 trillion yuan but less than the previous year's explosion of lending.
M2, the broadest measure of money washing around the world's second-largest economy, reached 72.58 trillion yuan at the end of last year, up 19.7 percent from a year earlier.
Analysts blame China's huge trade surplus — $183.1 billion in 2010 — and its massive stimulus measures since late 2008 to combat the financial crisis for the flood of credit that has been fuelling inflation and property prices.
Foreign exchange earned by Chinese exporters is changed for yuan with the central bank so it can control the value of the local unit — a policy long criticised by China's trade partners for grossly undervaluing the currency.
The foreign exchange is added to China's growing coffers, while the yuan fuels the amount of money flowing into the economy.
Ever fearful of inflation's potential to spark social unrest, top leaders have been pulling on a variety of levers to rein in consumer prices and calm growing anxiety about soaring food costs and property values.
In December, the central bank hiked interest rates for the second time in less than three months. It has also ordered lenders to keep more money in reserve, effectively limiting the amount of funds they can lend.
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