Slower pace of growth in money supply, output shows policies are taking effect Beijing yesterday reported that the pace of growth in industrial output and the money supply has slowed, indicating that measures to cool the overheating economy are taking effect. Figures released by the National Bureau of Statistics showed industrial output continued to rise, hitting 431 billion yuan in May. But the 17.5 per cent rise in the month compared with last May came in lower than the 19.1 per cent jump recorded for April. At the same time, the People's Bank of China announced that M2, a broad measure of money in circulation, rose 17.5 per cent to 23.5 trillion yuan, 1.6 percentage points lower than growth in April. Total outstanding renminbi loans rose 18.6 per cent to 17 trillion yuan at the end of May, 1.3 percentage points lower than in April. Huang Yiping , China economist with Citigroup in Hong Kong, said the rise in industrial output in May was lower than he had been expecting. He said stripping out the influence of last year's Sars outbreak produced an even lower growth rate of 14.3 per cent. 'This clearly shows there is a slowdown and that government policy has been effective,' he said. The State Council has been using strong-arm tactics such as cutting loans to overheated sectors such as steel, and outright bans on applications for new construction projects. Mr Huang said the slowdown should alleviate pressure on the government to raise interest rates, which he believed would hurt overall private-sector growth. '[This slowdown in growth] should reduce the pressure to raise interest rates,' said Mr Huang. 'I believe the policy should continue, but we don't need to put any more pressure on the brakes.' Bruce Murray, an economist and chief representative of the Asian Development Bank in Beijing, said he also believed the government's policy was working. 'I'm pretty confident China can engineer a soft landing,' he said. 'I don't believe they can do it with only monetary policies. They need to take fiscal-side measures. Now they are using a full range of mechanisms, including administrative ones. 'Some people say they're using administrative mechanisms as they should in a market economy. But I tell those critics China is not a market economy yet and that administrative measures are needed.' According to the Bureau of Statistics, production figures for the first five months increased 18.1 per cent year-on-year to 2 trillion yuan. The slowdown in growth was especially marked in the commodity, energy and raw material sectors, and reflected less growth in construction, it said. 'Growth has been sustained in use of natural resources and commodities, but the pace has slowed,' the bureau said on its website. Cement production, for instance, rose only 17.1 per cent in May, up 0.3 percentage points over April, while aluminium production rose 17.7 per cent, up only 2.9 percentage points over April. The People's Bank of China said total outstanding renminbi loans rose 18.6 per cent to 17 trillion yuan at the end of May, 1.3 percentage points lower than growth in April.