Chinese "true" M1 growth still subdued
Simon Ward
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The PBOC has released additional monetary data for June, allowing calculation of the “true” M1 measure monitored here. To recap, M1 is conventionally defined as currency in circulation plus demand deposits. Chinese M1, however, includes only demand deposits of corporations – a major deficiency at a time when policy is attempting to promote consumption- rather than investment-led growth. True M1 corrects this omission by adding a separate series for household demand deposits to the official M1 measure.
The six-month change in real true M1 (i.e. deflated by consumer prices) slumped in late 2014, warning of economic weakness in 2015 – see first chart. Growth has recovered but is no higher than a year ago and below that of real official M1 (and M2). The suggestion is that recent policy easing has been only partially effective and economic expansion, while reviving, will remain below par.
Corporate demand deposits, including deposits of state bodies, are rising solidly in real terms but household deposits continue to stagnate – second chart. A near-term economic pick-up based on higher corporate / state spending is unlikely to be sustained without consumer follow-through.
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