M2 Money Supply Extends Record Low Growth Run in July, PBOC Cautions Against Excessive Concern


Growth in China’s M2 money supply has sunk to another record-breaking low in July after succumbing to unprecedented weakness the previous month, with PBOC itself observing that its significance for the economy is on the wane.

The People’s Bank of China released its “July Financial Statistic Data Report” on 15 August, which indicated that the M2 balance increased to 162.9 trillion yuan that month for year-on-year growth of 9.2%.

Growth in the M2 money supply for July eased 1 percentage point compared to the same period last year and 0.2 percentage points compared to June, whose 9.4% rate of expansion marked a then historic low, as well as the second consecutive month that growth fell below the two digit threshold.

Shenwan Hongyuan analysts said to Securities Daily that regulatory factors had impeded M2 growth by crimping deposit-derived increases in the money supply.

The M1 balance for July was 51.05 trillion yuan, for a year-on-year increase of 15.3%, for an acceleration in growth of 0.3 percentage points compared to June, and a decline of 10.1 percentage points compared to the same period last year.

The M0 balance was 6.71 trillion yuan, for a year-on-year gain of 6.1%, with net cash injections of 15.1 billion yuan in July.

Despite the second consecutive month of record-breaking lows for growth in the M2 money supply, the figures for additional RMB loans and total social financing both came in ahead of consensus expectations, pointing a decline in the significance ofM2 index for broader economic performance.

RMB loans increased 825.5 billion yuan in July, 361.9 billion yuan ahead of the same period last year, while the household sector accounted for 561.6 billion yuan of additional lending.

Total social financing – a broad measure of credit in the Chinese economy, is estimated by the report to have expanded by 1.22 trillion yuan in July, for an increase of 741.5 billion compared to the same period last year.

With respect to the new historic low tapped by M2 growth in July, PBOC previously stated in its “2017 Second Quarter China Monetary Policy Execution Report” (2017年第二季度中国货币政策执行报告) that the progress of China’s deleveraging campaign as well as official efforts to ensure that the financial system better serves the country’s real economy mean that these lower levels of money supply expansion could become the “new normal.

PBOC further noted that following greater market-orientation and innovation in China’s financial sector, the increasing complexity of factors impacting the money supply means that the predicability and controllability of the M2 balance is on the decline, as is its relationship with the broader economy.

In PBOC’s estimation, however, this development need not warrant “excessive attention.”