Total social financing (“社会融资规模” or “社会融资总量,” also referred to in English as “aggregate financing to the real economy”) refers to the aggregate volume of funds provided by China’s domestic financial system to the private sector of the real economy within a given timeframe.
The Chinese government employs it as a liquidity measurement tool to abet the formation of monetary policy.
TSF includes indirect finance via the banking system, as well as direct financing via stocks and bonds on the capital market.
It excludes inflows of overseas funds such as funds outstanding for foreign exchange or foreign direct investment, as well as government bonds whose proceeds are used for spending by the state.
TSF is a money-added concept, because it purports to measure the total amount of funds that the real economy obtains from the entire financial system during a given timeframe, whether that be a month, a quarter or a year.
TSF is comprised of a total of ten sub-indices including:
- RMB loans.
- Foreign currency loans.
- Entrusted loans.
- Trust loans.
- Undiscounted bank bills of acceptance.
- Corporate bonds.
- Non-financial corporate domestic equity financing.
- Insurance company repayments.
- Investment property.
- Financing via other financial instruments.
These sub-indices can be divided into three primary categories that overlap.
The first is all funding support provided by financial institutions towards the real economy, which includes sub-indices 1. RMB loans, 2. foreign currency loans, 3. entrusted loans, 4. trust loans, 6. corporate bonds and 7. non-financial corporate equity held by financial institutions, insurance company repayments and investment property.
The second is standardised financial instruments used by actors in the real economy to obtain direct financing with the assistance of financial institutions, including sub-indices 5. bank bills of acceptance, 7. non-financial corporate equity fund-raising and and 6. corporate bond issuance.
The third is other forms of financing that fall under the first sub-index of RMB loans, including loans from micro-loan companies, loans from loan companies, and industry fund investments.
PBOC definition of total social financing was expanded in 2018 to include the asset-backed securities of depository financial institutions and loans written off starting in July of that year, as well as local government special bonds in September.
Principles Underlying Total Social Financing
Four statistical principles underlie the reporting of TSF: the domestic principle, the financing principle, the consolidation principle, and the added valuation principle.
1. The domestic principle
The recipients and suppliers of TSF are all domestic entities, which means that foreign direct investment, foreign debt, and funds outstanding for foreign exchange.
2. The financing principle.
The financing principle dictates that sovereign bond issuance is not included in TSF, because the issuer of sovereign bonds is the government, which means that any funds raised fall under the category of fiscal policy.
3. The consolidation principle.
TSF only refers to funding support provided to the real economy by all financial institutions and financial markets via direct or indirect means.
For this reason, the consolidation principle dictates that the reciprocal debt and credit relationships between financial institutions must be consolidated during the calculation of TSF.
These reciprocal credit relations are offset during the calculation of TSF in order to avoid double counting. For example, the equity or bonds that financial institutions hold in each other is not included in TSF.
4. The added valuation principle.
TSF is an added value concept, and thus refers to the difference in the total debt balance at the beginning and start of a period, or the amount of debt issued or arising in a given period minus the amount repaid during the same period.
History of the Development of TSF
TSF is a comparatively new concept that made its debut in 2010 under the Hu-Wen administration.
At the start of 2010 Chinese Premier Wen Jiabao made reference to “maintaining a rational scale and pace of social financing” (保持合理的社会融资规模和节奏), while in the same year the Central Economic Work Conference (中央经济工作会议) made reference to “maintaining rational total social financing” (保持合理的社会融资规模).
Since the start of 2011 the term “social financing” (社会融资) began to appear more frequently in official documents concerning financial policy.
In January 2011 the People’s Bank of China made reference to “maintaining rational total social financing” at its annual work conference.
PBOC released its “2010 Fourth Quarter Monetary Policy Implementation Report” on 30 January 2011, which made reference to “focusing more on the role of monetary volume in guiding expectations during macro-adjustments, focusing more on balancing the level of support of finance for the economy from the perspective of total social financing…it is necessary to maintain rational total social financing, strengthen the role of the market in resource allocation, and further raise endogenous drivers of economic development” (“在宏观调控中需要更加注重货币总量的预期引导作用，更加注重从社会融资总量的角度来衡量金融对经济的支持力度，要保持合理的社会融资规模，强化市场配置资源功能，进一步提高经济发展的内生动力”).
The concept subsequent became a focal point for financial and economic discussions in China, during a period when PBOC was making the transition from “appropriate loosening” (适度宽松) to “stabilisation” (稳健).
By 2011 was PBOC making reference to TSF and the pace of TSF as a target for adjusting and stabilising monetary policy.
In January 2011 the Development Research Centre of China’s State Council held the “International Financial Market Analysis Annual Conference” (国际金融市场分析年会), while Guanghua School of Management at Peking University held the “Guanghua New Year Forum” (光华新年论坛), where various experts weighed in on the significance of the new concept.
Li Wei, then chair of the State Council’s Development Research Centre, said that the introduction of TSF was part of efforts by the central government to contain the inflation created by the stimulus plan launched in the wake of the Great Financial Crisis to shore up China’s economic growth.
“The current focus of macro-economic policy proposed for this year by the central government is the suppression of inflation. Over the past two years expansionary monetary and fiscal policy was adopted in order to deal with crisis and avoid a large-scale decline in the economy.
“This has had a highly pronounced effect when it comes to raising economic growth, but any policy of any country in any era will be necessity have two sides. The drawbacks of this policy are gradually becoming apparent, and high inflation is one of them.”