Financial Credit Sends Down Real Economic Demand Signal

If we say that the contradiction in monetary policy last year was on the supply side (there was demand and no supply), then the contradiction in monetary policy this year is on the demand side (there is no demand for supply). In January, the total amount of social financing dropped sharply by more than 40% year-on-year, which was due not only to the monetary tightening of the previous monetary authorities, but also to the fact that real demand in the real economy has shrunk. Taking into account that the financial credit cycle precedes the economic cycle, the economic growth rate in the future may decline further.

First of all, this is mainly because the central bank has guarded against financial risks since last year, and the introduction of new regulations has produced results. In recent years, with the emergence of financial disintermediation in China and the emergence of a large number of off-balance-sheet assets, financial products and financing tools have been continuously innovating, financial aggregates have expanded rapidly, and off-balance-sheet operations of commercial banks have shown a clear substitution effect on loans, making the central bank’s financial supervision more and more challenging. difficult. Some trust companies invest funds in physical, infrastructure, financial instruments, and high-risk and high-return fields, such as stock markets and real estate, and have accumulated a lot of potential financial risks.

On August 30 last year, the Central Bank issued a notice to explicitly include the three types of deposits of commercial bank acceptance bills, letters of credit, and guarantees into the deposit reserve deposit base, which largely compensates for the regulatory loopholes in the total financing of the society. The reduction of systemic risks in the banking system has also caused the growth of the total amount of social financing to be constrained to some extent. The central bank's data shows that the scale of social financing in 2011 was 12.83 trillion yuan, which was 1.11 trillion yuan less than the same period of last year.

Second, the real estate bubble was squeezed and the macro-control effect was obvious. Under the control of the Chinese government’s firm real estate, both real estate investment and real estate sales have fallen. The statistics released by the Statistics Bureau show that in January, housing prices in all 70 large and medium-sized cities in China have all stagnated, with 48 cities falling in price. There are 22 cities. As the real estate market declines, the growth of medium- and long-term credit demand associated with real estate will maintain a downward trend, which will further accelerate the inflection point of the real estate market.

Of course, some trending and structural factors cannot be ignored. To a large extent, the sustained and rapid decline of medium and long-term loans by enterprises, especially SMEs, is a manifestation of the shrinking real economy demand. Since the second half of 2010, the growth rate of medium and long-term loans of enterprises and the growth rate of short-term loans have shown a clear deviation, and the growth rate of medium and long-term loans has continued to decline. In January 2012, the company’s new medium- and long-term loans were only 235 billion yuan. In the 19 days before February, the new state-owned loans of the four major state-owned banks accounted for only about 70 billion yuan, a new low for new loans, and the decline in medium and long-term loans. Behind the scenes, the demand for the internal and external real economy has shrunk.

From the external perspective, the debt crisis in Europe continues to deepen, dragging the global economy further down, leading to a serious shortage of external total demand, China's foreign trade situation is extremely grim. According to data released by the General Administration of Customs, China’s imports and exports in January showed negative growth year-on-year, of which exports were the first negative growth since December 2009. From the perspective of the internal production and operation of enterprises, as the economic growth slows down quarter by quarter, the output gap has narrowed, and the demand for price has weakened. However, due to the rapid appreciation of the renminbi, raw materials and labor costs, the export price advantage of China's products has weakened. In particular, the PPI has continued to fall, and corporate profits have been further compressed. As a result, the capital demand for future expansion of production and operations began to decrease. If we consider that the financial and credit cycle must precede the economic cycle, then China's economic growth will continue its downward trend in the future. Therefore, fine-tuning of monetary policy is very necessary.

The recent reduction in the central bank's benchmarking rate by 0.5% and the calculation of RMB80 trillion in renminbi deposits in a broad range of currencies can release approximately 400 billion yuan in funds, which can alleviate short-term bank capital shortages. However, the main tone of the “steady” monetary policy is not a substantive change. According to the 2011 M2 balance, a 14% increase means that M2 was around 97.08 trillion at the end of 2012. According to central bank data, the monetary multiplier at the end of 2011 was 3.79, which meant that the base currency requirement for the 2012 target was approximately 25.61 trillion yuan, while the base currency balance at the end of 2011 was 22.50 trillion yuan, and the median balance was only around 3.11 trillion yuan. The money supply is not really loose.

From the perspective of the future liquidity structure, the author believes that there may also be a differentiation between the liquidity of the financial system and the liquidity of the real economy. For real economy liquidity, the more serious problem is that the contraction of social financing growth will continue for a long time, and the platform-style decline of foreign exchange reserves will also cause the M2 growth rate to continue to decline. The overall liquidity supply growth rate is still in a downward trend. In the future, interbank liquidity may enter a loose state, while the real economy liquidity is still moderately tight. Therefore, the real contradiction in monetary policy this year is how to improve and meet the demand side - the effective demand of the real economy.

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