The PBOC (People's Bank of China - the Chinese central bank or Federal Reserve equivalent) announced the following in the Shanghai Daily on Wednesday:

M2, the broadest measure, rose 16.9 percent at the end of April from a year earlier to 42.9 trillion yuan (US$6.1 trillion)...

Together with the growth rate of Real GDP of 10.8% and inflation at 8%, for our "equation of exchange" identity formula (also called the "quantity equation"):

%DM + %DV = %DP + %Dy          where "D" means "change" as in the greek letter delta*

Velocity is assumed constant or close to 0%, so for China today we have:

16.9% + 1.9% =  8% + 10.8%**

Basically we can see that the money supply is growing faster than economic growth and therefore China has significant inflation.  The banks are creating too much money (loaning out too much) as we discussed in class yesterday.

Furthermore, money supply growth is why the PBOC is calling on Chinese to spend more (go shopping) and save less: to give the banks less money to loan out.  ALSO, money supply growth is the reason that the PBOC keeps raising the reserve requirement: to make banks keep more of their cash IN THE BANK and loan less out, therefore keeping the money supply lower.

Also note that the PBOC will NOT increase interest rates due to the earthquake in Sichuan AND they are making MORE money available to the banks in the region - totally appropriate, in my humble opinion.

Notes:
*   symbol font does not seem to work in the blog!
       M is the Money supply, V is the velocity of money, P is the price level and y is real GDP (Macroecon 101)
** The money supply growth rate is year over year, the other two growth rates are for the first quarter, so these are estimates and the velocity of money may not have actually increased. 
The article title:  "M2 climb adds to PBOC woes"