Chinese economy recovering, narrow money still surging
Simon Ward
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Posts since September have argued that a Chinese economic growth revival is under way and will gather strength in early 2016. November activity data are consistent with this scenario: annual growth rates of industrial output, retail sales and private fixed investment rose notably on the month, beating consensus expectations – see first chart.
The PBoC, meanwhile, has released additional monetary detail for November, allowing calculation of the “true M1” measure followed here*. Annual growth of true M1 rose further to 13.9% last month, the fastest since March 2013. As in 2008-09 and 2012-13, growth started to pick up several months after cuts in official interest rates and reserve requirements, which began in November 2014 and February 2015 respectively – second chart.
Real (i.e. CPI-deflated) true M1 surged by 9.9%, or 20.8% at an annualised rate, in the six months to November, suggesting a powerful rebound in economic growth from early 2016 through the summer, allowing for a typical nine-month lead – third chart.
Demand deposits of non-financial enterprises, other corporate entities and households have all accelerated strongly over the past six months – fourth chart. A claim that the M1 surge has been narrowly focused on demand deposits of local government financing vehicles, therefore, is false. (Such vehicles are included in the “other corporate” segment.) The breadth of improvement suggests improving prospects for both business and consumer spending.
*True M1 = official M1 plus household demand deposits. Official M1 = currency in circulation plus corporate demand deposits.
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