The annual growth of money supply including cash in circulation and demand deposits, or M1, was 9.06 percent in December compared to a 6.8 percent in November.

The growth suggests the recent aggressive cuts in banks' reserve requirement ratios have helped improve liquidity, said Jing Ulrich, chairman of China equities at JPMorgan.

The PBOC has cut interest rates five times, totaling 2.16 percentage points, since September. It has reduced the amount of deposit that lenders have to set aside to boost liquidity, too.

Earlier, policymakers said the government would try to ensure a 17 percent M2 growth this year despite the economic slowdown.

The moves, the analysts said, are expected to encourage banks to issue new loans, which are crucial for the government to deliver the $586-billion stimulus package.

But some economists fear that increased lending could lead to a spurt in bad loans because returns from infrastructure projects are less predictable than what they were a decade ago. Ten years ago, the government began building a wide network of highways and other infrastructure as part of its fight against the Asian financial crisis.

"The boost to the economy is obvious in the short term," said Ha Jiming, an economist with China International Capital Corporation. "But we need to keep an eye on the risk for lenders."

(China Daily January 14, 2009)