Political support essential for China’s economic and financial recovery

According to the latest statistics from the People’s Bank of China (PBoC), monetary and financial data showed a return to growth in June. At the end of June, the broad money (M2) balance was RMB 258.15 trillion, an increase of 11.4% year-on-year, and the growth rate was 0.3 and 2.8 basis points. percentage higher than the end of last month and respectively the same period of the previous year. Meanwhile, the narrow money (M1) balance was RMB 67.44 trillion, an increase of 5.8% year-on-year, where the growth rate was 1.2 and 0.3 points. percentage higher than at the end of last month and the same period of the previous year. year respectively. The balance of money (M0) in circulation was 9.6 trillion RMB, an increase of 13.8% year-on-year.

In the first half of the year, net cash investment was RMB 518.6 billion. At the end of June, the stock of social finance stood at RMB 334.27 trillion, up 10.8% year on year, and the growth rate was 0.3 percentage points higher than of May, although it is still below the 11% growth rate of the same period last year. The growth rates of the M2, M1 and social financing scales all showed an upward trend simultaneously. The ANBOUND researchers believe that this reflects the fact that, under the impetus of the intensification of macroeconomic policies, the overall financial and economic situation is showing an upward trend.

Figure: Monthly growth rates of monetary and social financing and change in price level (in percent)

Source: People’s Bank of China and National Bureau of Statistics, graph drawn by ANBOUND

However, in terms of credit growth, which accounts for the bulk of social finance and currency, the RMB loan balance at the end of the month was RMB 206.35 trillion, an increase of 11.2% in year-on-year, and growth was 0.2 percentage points higher than at the end of last month and 1.1 percentage points lower than the same period last year. In June, RMB lending increased by RMB 2.81 trillion, a year-on-year increase of RMB 686.7 billion. This shows that despite the substantial growth in RMB credit in June and the overall recovery has been achieved, the bullish momentum remains insufficient. Continued macroeconomic policy support will still be needed to allow China’s finances and economy to fully recover. In addition, at the end of June, the RMB deposit balance stood at RMB 251.05 trillion, an increase of 10.8% year on year, and the growth rate was 0.3 and 1.6 points. higher percentage than at the end of the previous month. and the same period of the previous year respectively. In June, RMB deposits increased by RMB 4.83 trillion, a year-on-year increase of RMB 974.1 billion. The rapid growth in deposits is consistent with the results of China’s central bank’s previous survey, indicating that under the continued impact of the COVID-19 pandemic, the market still lacks confidence in consumption and investment, which affects credit demand to some extent.

On the other hand, the stock of social finance at the end of June was RMB 334.27 trillion, a year-on-year increase of 10.8%. Among them, the balance of RMB loans extended to the real economy was RMB 205.09 trillion, an increase of 11.1 percent year-on-year. The balance of foreign currency loans to the real economy stood at RMB 2.33 trillion, an increase of 0.5% year-on-year. Loans entrusted decreased by 0.5% over one year, fiduciary loans by 29.6% over one year and undiscounted bankers’ acceptances by 19.2% over one year. The corporate bond balance was RMB 31.48 trillion, up 10.1% year-on-year. The government bond balance was RMB 57.72 trillion, up 19% year-on-year. The domestic inventory balance of non-financial enterprises was RMB 9.96 trillion, a year-on-year increase of 14%.

The cumulative increase in social finance in the first half of 2022 was RMB 21 trillion, RMB 3.2 trillion more than the same period last year. Among them, RMB lending to the real economy increased by RMB 13.58 trillion, a year-on-year increase of RMB 632.9 billion. Foreign currency lending to the real economy increased by RMB 45.8 billion, a year-on-year decline of RMB 182.3 billion. Loans underwritten decreased by RMB 5.4 billion, a year-on-year decrease of RMB 109.1 billion; while fiat loans decreased by RMB 375.2 billion, a year-on-year decrease of RMB 348.7 billion. Undiscounted bankers’ acceptance bills decreased by RMB 176.8 billion, a year-on-year decrease of RMB 171.4 billion. Net corporate bond funding was RMB 1.950 billion, an increase of RMB 391.3 billion year-on-year. Net government bond funding was RMB 4.65 trillion, an increase of RMB 2.2 trillion year-on-year. In addition, the country’s non-financial enterprise equity financing amounted to RMB 502.8 billion, an increase of RMB 7.3 billion year-on-year.

These data changes reflect that the magnitude of social finance in May and June increased significantly amid intensified monetary policy easing since the second quarter. The increase in the scale of social financing in June reached RMB 5.17 trillion, an increase of RMB 1.47 trillion year-on-year. The social finance stock essentially filled the void left by the sharp decline in social finance in March and April, and overall social finance returned to its long-term trend. In realizing the gradual recovery of the scale of social financing, it should be pointed out that government bond financing has played a major role and its gradual growth has reached RMB 2.2 trillion. In fact, this is mainly due to the massive issuance of local government bonds in May and June. It was estimated that in June alone, the additional scale of government bond financing reached RMB 1.6 trillion, representing a significant continued increase from the RMB 1 trillion in May. This played a major role in raising the social finance scale by RMB 3.3 trillion. In addition, the decline in unconventional financing such as entrusted loans, trust loans and bank drafts is due to the substitution effect induced by credit easing on the one hand, and this is closely related to the effect of the contraction of the real estate market on the other hand. In the first half of the year as a whole, the rise of RMB 13.58 trillion in credit to the real economy, an increase of RMB 632.9 billion year-on-year, also means that the sustained target of central bank to maintain credit growth has been completed.

For the growth rate of the social finance scale to be 10.8%, it would mean that China’s timely monetary policy adjustment in the first half of the year has a positive effect on stabilizing the country’s finances and promoting stable growth. This can serve as a basis for the PBoC to emphasize the return to stabilization policy. As for the second half of the year, the scale of social financing is still under strong pressure to maintain the pace of growth. This is especially true when the peak of local bond issuance has passed and the quota has been exhausted. Issuance of government bonds, which played a role in supporting and driving social growth in the first half of the year, will then see its effect diminish. This, in turn, will increase reliance on RMB loans or other direct financing for social finance growth. Promoting the growth of bank loans will remain the main task in the future. In other words, China’s macroeconomic policies, such as monetary and fiscal policies, have yet to provide continued support for economic recovery through full easing and structural adjustment.

Conclusion of the final analysis:

In June, the growth rate of monetary and social financing in China showed a simultaneous increase, indicating that the country’s overall financial and economic situation shows a recovery trend. This, all in all, is driven by the intensification of macroeconomic policies. Nevertheless, in the context of the withdrawal of local government bond issues, there will continue to be pressure to maintain the continued growth momentum of monetary and social finance in the future. Therefore, the continued support of macro-policies will become essential.

About Emilie Brandow

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