Chinese money / credit numbers mixed, suggesting stable growth
Chinese monetary trends continue to suggest moderate economic expansion and limited “excess” liquidity to fuel asset price bubbles. The monetary backdrop, in other words, is consistent with policy goals.
Six-month real M1 expansion, the favoured indicator here, rose sharply from 3.6%* in December to 6.8% in January – see first chart. The increase, however, is likely mainly to reflect the timing of the Chinese New Year – M1 expands temporarily around the holiday, which can have a positive or negative impact on end-January data depending on its date. The timing this year is similar to 2010 and 2008 – New Year falls on 10 February versus 14 February and 7 February respectively. Six-month real M1 expansion rose in January in both years but fell back significantly in February. A similar pattern is likely this year.
Six-month real M2 and credit expansion – as measured by bank loans and the wider “total social financing” aggregate – are shown in the second chart. Real M2 growth has been broadly stable recently while bank loan expansion has slipped to a 15-month low. Both are modestly below their averages over the last 15 years. Real social financing, by contrast, is relatively strong, reflecting fund-raising outside the banking system in the form of corporate bonds / bills and entrusted / trust loans. The view here is that such borrowing has little positive economic implication because it is not associated with money creation.
The gap between six-month real money and industrial output expansion is a gauge of “excess” liquidity available to push up asset prices. For both M1 and M2, this is currently positive but small, suggesting limited fuel for property or stock market strength.
*Seasonally adjusted, not annualised.
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