M1 fell 4.2% year-on-year in May, what signal was released? Expert interpretation

CBN

2024-06-14 22:02Posted on the official account of Shanghai Yicai

In May, the growth rate of M1 and M2 slowed down further, causing market concern.

On June 14, the central bank disclosed financial data for May showing that at the end of May, the balance of broad money (M2) was 301.85 trillion yuan, a year-on-year increase of 7%. The balance of narrow money (M1) was 64.68 trillion yuan, down 4.2% year-on-year.

The M1 needs to be seen from a wider caliber

Some market views believe that the reason for the decline in M1 growth is the weak expectations of enterprises. In fact, the current slowdown in M1 growth is disturbed by multiple factors.

China's M1 statistics include cash and corporate demand deposits. In recent years, with the rapid development of electronic payment, the liquidity of personal demand deposits has been continuously enhanced, and many money market funds and wealth management products can also be redeemed at any time. In contrast, M1 in both the U.S. and Japan includes individual demand deposits, and the U.S. also includes money market deposit accounts, among other things.

A source close to the regulator told Yicai that it is necessary to look at the liquidity situation of the M1 market from a broader perspective. "We have made estimates, if the residents' demand deposits, cash management products, etc. are included in the caliber re-examination, the growth rate of M1 in May is about 2%, not as low as the published data."

Some studies have begun to focus on the underestimation of M1 growth. According to a recent CICC research report, funds similar to M1 but not included in the statistics include resident demand deposits, cash management products, and reserves of third-party payment institutions, all of which have characteristics similar to M1. If the above three types of funds are included, the growth rate of M1 in April is about 0.6%-1.1%.

The recent decline in M1 growth rate is related to factors such as the standardization of manual interest replenishment and deposit diversion. On the one hand, in the context of cracking down on the idling of funds and stopping manual interest supplements, the deposits of some irregular enterprises have decreased simultaneously. According to industry insiders, since April, many agreement deposits and call deposits between banks and large corporate customers have been converted into wealth management or time deposits, of which agreement deposits are the majority, and they are included in M1, and the subsequent impact will continue to appear.

According to the statistics of the central bank, in the first five months of this year, the demand deposits of non-financial enterprises decreased by about 4 trillion yuan, and the fixed deposits increased by about 1.5 trillion yuan.

On the other hand, with the diversification of wealth management methods, in the context of the downward trend of deposit interest rates, wealth management products play an obvious role as a "reservoir" of deposits, and the substitution attribute of deposits is enhanced, and some demand deposits are diverted to the wealth management market.

Since the beginning of this year, bond funds have obvious yield advantages, and the corresponding wealth management products have also been favored by investors. According to WIND statistics, as of the end of May, the asset size of bond funds exceeded 9.5 trillion yuan, an increase of about 1.8 trillion yuan year-on-year, and the balance of M1 in the same period was 64.68 trillion yuan, a year-on-year decrease of 4.2%.

The slowdown in M1 growth is also a reflection of economic transformation and upgrading, as well as the improvement of quality and efficiency. Historically, the demand deposit of real estate enterprises and local government financing platforms is the main part of corporate demand deposits, with the major changes in the supply and demand relationship of the real estate market and the further standardization of local government borrowing behavior, the sales collection of real estate enterprises and the cash flow of financing platforms have decreased, which is reflected in the slowdown of M1 growth in the short term, and reflects the transformation and upgrading of the economic structure and the adjustment and optimization in the long term.

In addition, the optimization of the value-added accounting method of the financial industry this year has also brought about the crowding effect of financial data. Previously, the quarterly value-added accounting method of the financial industry was highly dependent on the scale of deposits and loans, and local governments had a strong impulse to supervise banks to rush to increase deposits and loans.

An authoritative expert in the industry told Yicai that the optimized accounting method pays more attention to efficiency rather than scale, and all parties have begun to squeeze out the inflated components in the past deposit and loan data, and will continue to have a pull-down effect in the next few months.

The growth rate of M2 fell back to active squeezing

Disturbed by last year's high base, the growth rate of M2 also fell back in May.

According to the data, the year-on-year growth rate of M2 in May 2023 was as high as 11.6%. The stock of M2 has exceeded 300 trillion yuan, and in the eyes of the market, it is difficult to hope for a sustained double-digit high growth in monetary aggregates.

Since the beginning of this year, M2 and RMB loans have generally slowed down, and the central bank has repeatedly issued explanations through the "Monetary Policy Implementation Report" and other channels.

According to the CBN interview, the decline in M2 growth rate can be understood as an active squeeze of water in the high-quality development stage. "Financial institutions are affected by the traditional scale of the situation, and in the past, there was a phenomenon of relying on inflated deposits and loans to make high financial data, which is increasingly unsustainable in the stage of economic transformation and upgrading." The above-mentioned authoritative experts in the industry said.

Since the beginning of this year, standardizing manual interest supplementation and optimizing the accounting of added value of the financial industry are actually taking the initiative to squeeze out water, and it is also the implementation of the requirements of the "Government Work Report" on avoiding the precipitation and idling of funds. In this process, the growth rate of M2 will fall somewhat.

The growth rate of M2 is also affected by some phased factors. According to central bank data, the scale of corporate and government bond issuance increased significantly in May, an increase of nearly 900 billion yuan year-on-year. "Some enterprises use the funds to repay in advance after issuing bonds, which also has a downward impact on credit growth." The above-mentioned sources close to the regulator said.

In particular, the recently issued special treasury bonds have the characteristics of higher yields than deposits, strong liquidity, and relatively low risks, and are warmly sought after by institutional and individual investors. Through the purchase of wealth management and other channels, a large number of deposits of residents and enterprises flowed to the bond market.

According to WIND statistics, the asset size of bond funds increased by 492.1 billion yuan from January to May, compared with 73.2 billion yuan in the same period last year.

Revitalizing stocks is not about tightening credit

"Changes in financial stock data should not be measured by year-on-year increases." Another market expert believes that the focus on financial aggregates should be gradually diluted.

The market expert said that economic indicators such as GDP, consumption, and investment are flow concepts, while commonly used financial indicators such as broad money supply M2, social financing scale stock, and RMB loan balance are stock concepts, which are the sum of all accumulated flows in the past after deducting maturity, and are the concept of net increment strengthening.

That is to say, the financial stock is the result of considering the voluntary renewal of financial maturity, and the flow in the early stage is voluntarily used on a rolling basis, and it is still repeatedly playing a role in supporting the real economy, while the economic flow index is a one-time activity, and there is no rolling use, and there is a clear difference between the two.

People in the industry generally reflect that it is necessary for the central bank to dilute the comparison of the year-on-year increase in financial stock, which is not easy to understand, and the measurement of the effectiveness of financial resource support is not accurate enough.

In the long run, the correlation between the financial scale index and the mainland's economic development is also gradually weakening. The market expert said that the mainland has long been highly concerned about aggregate financial indicators such as money supply and credit, and the underlying assumption is that they are highly correlated with economic growth. In fact, this correlation is waning as finance deepens and the economic structure transforms.

Historically, major advanced economies have focused on similar aggregate indicators, but have gradually downplayed and abandoned their peg as financial disintermediation intensifies.

Some market studies show that before 2015, the correlation coefficient between mainland M1 and the growth rate of industrial added value was close to 50%, but after 2015, it dropped to 15%; The role of credit in stimulating economic growth has also gradually weakened. From 1953 to 1977, 1978 to 1993, 1994 to 2007, and from 2008 to 2022, for every 1 yuan of credit supply in the mainland, the corresponding GDP increased by 1.646 yuan, 0.988 yuan, 0.935 yuan, and 0.489 yuan, respectively, and the driving effect was greatly weakened.

It is worth mentioning that revitalizing the stock to inject new momentum into the economy is not reflected in the increase in loans, and objectively the growth rate of money will slow down, but this does not mean that the central bank subjectively wants to tighten credit.

Since the beginning of this year, monetary policy has made one move after another in terms of quantity, price, and structure. At the beginning of the year, the RRR and interest rates were cut, the second quarter was launched in a timely manner to re-lend 500 billion yuan for scientific and technological innovation and technological transformation, the recent introduction of a real estate financial policy package, and the liberalization of the lower limit of the unified mortgage interest rate.

"On the whole, the current financial support is obviously larger, and the policy effect will continue to appear." According to the above-mentioned market experts.

In terms of interest rates, the expert believes that there is still room for interest rate reduction, but there are also internal and external constraints. The central bank has repeatedly publicly stated that there is still room for monetary policy, but the effect of the previous policy is still emerging, and it will continue to do a good job of counter-cyclical adjustment in the future in combination with changes in the situation. Objectively speaking, further interest rate cuts face internal and external "double constraints".

(This article is from Yicai)