At the end of December, 2008, the broad money supply (M2) in China reached a balance of RMB 47.52 trillion, up 17.82% year on year, and the growth rate is 1.8 percentage points higher than that at the end of the preceding year, and 3.02 percentage points than that at the preceding month; the narrow money supply (M1) arrived at a balance of RMB 16.62 trillion, halting the downward trend in consecutive seven months, and growing 9.06% year on year, and the growth rate is 11.99 percentage points lower than that at the end of the preceding year, and 2.26 percentage points higher than that at the preceding month; and the base money (M0) hit a balance of RMB 3.42 trillion, rising 12.65% from a year ago.

In December, the Renminbi-denominated transactions totaled RMB 11.76 trillion on the interbank offering market, reaching a daily average of RMB 511.2 billion, and the daily average transaction jumped 25.0%, or RMB 102.3 billion, from a year earlier. In December, the monthly weighted average interest rate on the interbank offering market stood at 1.24%, 0.85 percentage points lower than that in the corresponding year of the previous year, and the monthly weighted average interest rate on the pledge bonds was 1.22%, 1.57 percentage points lower than that in the same period of the previous year.

In 2008, the China stock market presented an overall downward trend amid ups and downs, accompanied by the considerable contraction of market transactions. At the end of 2008, Shanghai Composite Index closed at 1820.81, a decline of up to 3440.75 points, or 65.39%, as opposed to the end of 2007. The cumulative full-year trading volume on the A-share market of Shanghai Stock Exchange totaled RMB 18.03 trillion, with a daily average trading volume of RMB 73.294 billion, 44.48% and 42.43% down year on year respectively.

In 2009, China's credit market will present an overall "first bullish then bearish" trend. Considering the red flags for the economic growth slowdown and operating difficulties at part of the enterprises in the second half of 2008, the monetary policy is expected to become more flexible in tool selection, implementation and rhythm. China will think twice before making the decision to raise the interest rate in the context of the slow CIP growth downslide, the increased risk of the downward economic tendency, the financing difficulty at part of the enterprises, small and medium enterprises in particular, the mounting capital cost and the excess inflow of hot money. Despite the overall adequate liquidity in the first quarter, some banks are possible to face the issue of liquidity, a result of the recent credit extension in large amounts, while the central bank may choose to further cut the reserve ratio and the benchmark rate. It is expected that the legal reserve ratio is possible to be cut down to some 10% within the year ahead, while the interest rates on the 1-year deposits and loans will be lowered to 1.44% and 4.5% respectively in the same period.

Chapter One: China Money Supply & Credit Landscape, Q4 2008

1.1 Money Supply Rebounded

1.2 RMB Deposits in Financial Institutions Grew 19.73%

1.3 RMB Loans Made by Financial Institutions Accelerated Growth

1.4 Interbank Offering Rate Fell

1.5 Government Forex Reserves Rose

Chapter Two: Financial Market Operation Landscape, Q4 2008

2.1 Bonds Issuance

2.1.1 Bonds Issues Grew Sharply Year on Year

2.1.2 Medium Term Constitutes Mainstream of Term Structure

2.1.3 Central Bank Strengthened Repurchases

2.2 Interbank Lending

2.2.1 Market Transactions Active, Trading Varieties Focus on 1-day Transactions

2.2.2 Money Market Interest Rate Kept Declining

2.3 Analysis of Bonds Circulation Market

2.3.1 Interbank Transaction Settlement Grew over 60%

2.3.2 Exchange-traded Bonds Trading Volume Grew 46%

2.3.3 OTC Trading Volume in Commercial Banks Kept Shrinking

2.4 Analysis of Bonds Market Price Trend

2.4.1 China Bonds Composite Index Dramatically Rose to New High

2.4.2 Yield Curve Greatly Declined, First Flat Then Steep

2.5 Analysis of Bonds Balance

2.6 Stock Trading

2.6.1 Stock Index Declined amid Ups & Downs

2.6.2 Stock Market Size

2.6.3 Stock Issuance

2.6.4 Stock Trading

2.7 Forex Market

2.8 Futures Market

2.8.1 By Exchanges

2.8.2 By Varieties

Chapter Three: Financial Industry Operation Status, Q4 2008

3.1 NPL Balance of Commercial Banks Slid Greatly

3.2 Total Insurance Assets Grew to RMB 3.3 Trillion, Equity Investment Proportion Reduced to 13.3% in Insurance Fund

3.3 Securities Companies Suffered Profitability Decline but Remained Profit-making Overall

Chapter Four: Q4 2008 Monetary Policy Review and Financial Industry Trend Outlook

4.1 Monetary Policy Direction Had Essential Change

4.1.1 Monetary Policy First Became Loose in Over 10 Years

4.1.2 Central Bank Cut Reserve Ratios 3 Times, and Benchmark Rates on Deposits & Loans 4 Times

4.1.3 Central Bank Lifted Rigid Control over Credit Sizes of Commercial Banks

4.1.4 Lower Limit of Interest Rate on Personal Housing Loans Cut 30% for Selected Borrowers

4.2 Financial Industry Trend Outlook

4.2.1 Downward Trend of Economic Cycle Established

4.2.2 Capital Market to Present Overall Downslide amid Periodical Rebounds

4.2.3 Interest Rate & Exchange Rate Likely to Further Decline

4.2.4 Stability: Keynote of Renminbi Exchange Rate in 2009