Foreign direct investment pushed stockpile higher Foreign exchange reserves topped US$1.2 trillion by the end of last month, driven up in part by an 11.6 per cent year-on-year increase in first quarter foreign direct investment. Annual growth in the broad M2 money supply eased to 17.3 per cent in March from 17.8 per cent in February. It was still higher than the central bank's target of 16 per cent for the full year, despite its efforts to mop up liquidity by raising commercial banks' deposit requirement ratio and interest rates. As of the end of March, outstanding loans in yuan were up 16 per cent year on year to 23.96 trillion yuan. In March alone, yuan loans increased 441.7 billion yuan. 'Growth in loans is accelerating,' the bank said. The mainland last year became the world's biggest holder of foreign reserves, and the US$135.7 billion added in the last quarter pushed the holdings up 12.7 per cent from the end of last year and 37.36 per cent compared with the same period 12 months ago, the People's Bank of China said yesterday on its website. The news adds pressure for more tightening measures soon. Also, the Ministry of Commerce released data for the January-March FDI, which is a contributor to foreign reserves. Actual FDI rose 11.6 per cent to US$15.9 billion in the first quarter, about a quarter of last year's US$63 billion total. It was widely expected that the FDI increase would slow as the nation had sufficient capital. The FDI, aggregated with the first quarter trade surplus of US$46.4 billion, came to US$62.3 billion. The aggregate total was US$73.4 billion short of the US$135.7 billion foreign reserves increase in the first quarter but the central bank did not give reasons for the discrepancy. Ha Jiming, chief economist of China International Capital Corp, said the discrepancy was due to 'the repatriation of IPO proceeds by banks and firms that listed overseas last year, the repatriation of funds parked overseas that would have otherwise come as round-tripping FDIs to take advantage of tax breaks which the National People's Congress removed in March, and previous foreign exchange swaps that were due in the first quarter'. Zuo Xiaolei , chief economist of Galaxy Securities, said the discrepancy was interesting to note and prompted concerns about hot money. She said interest rate rises were necessary to mop up liquidity and was expecting them to happen in the second quarter. The International Monetary Fund has reported that emerging Asian economies, driven mainly by China and India, would expand at a brisk but slightly lower pace this year. The region will see 8.4 per cent growth, down on last year's 8.9 per cent, because a sharper-than-expected slowdown in the US was set to have only a muted effect. IMF chief economist Simon Johnson warned of a lingering risk that the Chinese and Indian economies could overheat despite recent measures to rein in racing growth.