BEIJING, CHINA - CHINA on Sunday said it would raise money supply by 17 per cent next year, boost policy loans by 14.6 billion dollars (S$21.7 billion) and urge commercial banks to lend more in its latest attempts to fight the global downturn.

'In order to face the attacks of the global financial crisis ... we must expand the scope of financial supports to advance the stable and fast-paced development of the economy,' said the State Council, or cabinet.

In a statement on the government's website, the council called for a 17 per cent increase in M2 money supply, or cash in circulation plus all deposits, in 2009.

It also said it would increase funding to policy banks by 100 billion yuan next year.

Commercial banks would be urged to extend loans beyond the four trillion yuan in borrowing expected to be issued in 2008.

The measures were part of 'an active fiscal policy and an appropriately relaxed monetary policy aimed at expanding domestic demand', which was approved by the ruling Communist Party last week, it added.

The cabinet also said lending rates could be further lowered and the foreign exchange rate given further flexibility.

China's commercial banks would seek to issue 4.6 trillion yuan in new bank loans in 2009, up by about 15 per cent over 2008, state media said last week.

In March, the government targeted for 2008 a 16 per cent growth in money supply.

China's export-driven economy is already feeling the effects of the global slowdown with textile plants facing huge over-capacity as workers are laid off and unsold goods stockpiled.

Following the financial meltdown in the United States, Beijing has introduced a series of monetary and fiscal measures, while announcing a four billion yuan spending package and steep interest rate cuts.

The finance ministry has also proposed allowing the 2009 fiscal deficit to swell to 280 billion yuan (S$60.7 billion), up 56 per cent from this year, to help maintain growth.