(Adds details)
By Jason Subler and Langi Chiang
BEIJING, Dec 14 (Reuters) - China aims to increase its money supply by 17 percent in 2009, the country's cabinet said, as it unveiled a broad blueprint for easing financial conditions to help grease the wheels of the world's fourth-largest economy.
The directive by the State Council was dated Dec. 8 but posted on the central government's website late on Saturday. It follows earlier pledges to take measures to stimulate local demand as the economy slows due to the global financial crisis.
It comes on the heels of a 4 trillion yuan ($586 billion) stimulus package announced last month, as well as repeated interest rate cuts by the central bank. [ID:nPEK95037]
The new target for growth in the broad M2 measure of money supply marks a substantial increase from the 15.0 percent pace in the year to October.
Among other measures to achieve that end, the cabinet said the central bank would stop issuing three-year bills and reduce its issuance of one-year and three-month bills, providing more liquidity in the financial system.
The steps are intended to "diligently implement the active fiscal policy and appropriately loose monetary policy and expand the support of the financial sector, so as to promote stable, rapid economic growth", the cabinet said in the statement.
The order comes amid growing concerns economic growth could fall below the 8 percent pace considered necessary to create enough jobs for the millions of people entering the workforce each year, after years of double-digit growth.
FLEXIBILITY FOR BANKS
The 30-point directive mandated a host of policy changes aimed at making it easier for companies and investment projects to obtain the credit they need, though most of them will have to be followed up with more specific implementation rules.
The cabinet said it would give banks more flexibility on the minimum allowable lending rates they can charge, and it could loosen other rules to give them more leeway in making lending decisions.
Beijing currently maintains a floor on lending rates and a ceiling on deposit rates.
The State Council called on banks to provide more credit to companies with sound fundamentals and to offer refinancing to such firms if they hit short-term cash flow problems.
It also told them to lend more in support of investment projects in line with the government's priorities, such as high technology, environmental technology and rural development, while limiting their loans to industries such as the processing trade, which Beijing has been trying to discourage.
"Banks must do a good job of balancing their roles in boosting economic growth with that of guarding themselves against risks; they should not be blindly reluctant to lend during an economic downturn," the cabinet said.
It added that the government would closely monitor global and domestic financial conditions and offer emergency liquidity support and other help should any financial institutions need it.
DETAILS
Other measures flagged by the State Council included:
-- It reiterated its long-standing commitment to making the
yuan's
-- The government will step up support for loan guarantee companies, including exempting them from some taxes, to guide more lending to small- and medium-sized enterprises.
-- To improve trade financing, the Export-Import Bank of China will expand its favourable interest rates to companies that export their own brand-name goods, or those containing their own intellectual property.
-- It pledged a series of capital market innovations, including launching new types of steel and grains futures and expanding the corporate bond market, especially for companies involved in key infrastructure projects.
-- It said it would launch NASDAQ-style start-up boards when appropriate and develop real estate investment trusts (REITs) on a pilot basis.
-- Listed banks will be allowed to buy and sell bonds issued on the country's stock exchanges on a pilot basis.
-- It will widen the investment channels for insurance firms, including encouraging them to buy bonds of companies involved in infrastructure, telecoms, energy and rural projects.
-- Foreign exchange rules will become more accommodative to firms involved in trade; the proportion of export bills firms can prepay and the portion of imports they can delay payment on will increase to 25 percent from 10 percent.
-- Yuan business in Hong Kong will be developed further, and the yuan will be increasingly used as a settlement currency for trade with neighbouring countries.
For the full text of the directive, in Chinese, click on: http://www.gov.cn/zwgk/2008-12/13/content_1177484.htm (Additional reporting by Nick Macfie; Editing by Anshuman Daga)