Growth of China’s money supply shrank to the year’s slowest level in December, the result of the country’s tightened financial regulation and deleveraging process, but analysts said the money supply situation will improve this year.
The broad measure of money supply, or M2, which covers cash in circulation and all deposits, had risen by 8.2 percent year-on-year by the end of December－the slowest pace in history, according to data released by the central bank on Jan 12. It was 3.1 percentage points lower than the figure for that period in 2016. The figure was 9.1 percent in November and 8.8 percent in October.
Last month, banks’ new yuan lending, another measure of market liquidity, dropped sharply to 584.4 billion yuan ($90.4 billion), the slowest monthly growth since April 2016, down from 1.12 trillion yuan in November, according to the People’s Bank of China, the central bank.
The PBOC also released data on total social financing, a broad measure of credit and liquidity in the economy, including off-balance-sheet forms of financing that exist outside the conventional bank lending system. The TSF decreased to 1.14 trillion yuan in December, compared with 1.60 trillion yuan in November.
Ruan Jianhong, head of the central bank’s surveys and statistics department, said at a news conference on Jan 12 that the slowdown of money supply was a result of the country’s deleveraging process in the financial sector, as many commercial banks recently curbed the expansion of off-balance-sheet products, a main part of the “shadow banking” business.
It is also a result of the monetary authority’s continued prudent and neutral monetary policy stance, as well as tightened financial regulation, said Ruan.
“A relatively lower M2 may become a new normal” along with the deepening of deleveraging, and the financial sector will better serve real economic development, the PBOC official said.
The country’s financial regulators have taken a series of measures to push forward the deleveraging of financial institutions across the board, including tightening trading rules for bonds, negotiable certificates of deposit and entrusted loans, as well as asset and wealth management products, aiming to prevent systemic financial risks.
The Bank of Communications said earlier this month that China’s M2 growth would rise by 10 percent this year.
Sheng Songcheng, a former central bank official, said in late October that China’s M2 growth might exceed 10 percent this year.
Liang Hong, chief economist with China International Capital Corp, said that “loan issuance may also surprise on the upside in January and February, driven by recovered demand for manufacturing investment and the still-resilient demand for infrastructure and mortgage financing”.
“It is likely that policymakers in China will grow more confident about growth and relatively more ‘hawkish’ in monetary policy conduct after March,” she said.