Text: Historical Records of Landscapes
Edited |
China's money supply has reached a new milestone, breaking through the 300 trillion yuan mark and surpassing the combined size of the United States and Europe.
However, the results of this economic indicator have not translated into an intuitive feeling of economic improvement among ordinary people, and many people are still under economic pressure, and their living conditions have not improved significantly because of the increase in the money supply.
The seemingly contradictory phenomenon of the price index remaining at a relatively stable level and the prices of some goods and services even showing a downward trend has aroused widespread public concern and questions, and people have begun to discuss where the new money is going.
According to the latest financial statistics report for March 2024 released by the People's Bank of China, the balance of China's broad money supply (M2) has climbed to 304.80 trillion yuan by the end of the month, achieving a growth rate of 8.3% compared with the same period last year.
This statistic highlights the activity of China's financial markets and the efficiency of money circulation.
This figure is not only more than the total global gross domestic product (GDP), but also almost equal to the economic output of many small countries in a year, and it is not just a simple number, it is a symbol of global wealth and its potential for future development.
M2, or broad money supply, is an economic term that corresponds to the narrow money supply and is a way of classifying money supply, usually expressed in M2.
The composition of M2 includes transaction currencies (M1, i.e., the sum of the total amount of cash in circulation and demand deposits of corporations and individuals) as well as time deposits, including household savings.
The money supply is divided into two senses, narrow and broad, mainly based on the role of money in economic activities, and money supply is one of the important objectives that central banks pay attention to when implementing monetary policy.
300 trillion yuan is a huge number, and to understand it better, we can compare it to the United States, the country with the largest economy in the world.
According to data released by the Federal Reserve System (Fed), the balance of the M2 money supply in the United States is about $20.8 trillion as of January 2024.
If converted at the exchange rate of 7.2 yuan per dollar, then this figure is roughly equivalent to 149.76 trillion yuan, which means that China's M2 balance is more than twice that of the United States.
This comparison may give the impression that China seems to have ample money. Even so, the amount of capital required for some crucial areas, such as chip manufacturing and semiconductor technology research and development, is still a huge amount.
In order to reach a level comparable to that of the United States in these key areas, huge investments are needed, which can amount to hundreds of billions of yuan. At the same time, in China's banking sector, there is a phenomenon known as "financial idling", which has attracted the attention of the People's Bank of China.
So, what is financial idling? Financial idling refers to the fact that a large amount of money and credit issued does not flow effectively to the real economy, but circulates within the financial system, resulting in an increase in asset prices.
In the context of an era dominated by financial capital, this phenomenon is considered unavoidable and may become a long-term condition. The emergence of financial idling is mainly due to one major contradiction in the country: insufficient effective demand and slow recovery of the real economy.
The central bank further elaborated that China's economy is in a critical period of structural adjustment and industrial upgrading and transformation, especially in the real estate sector, which has undergone significant changes in recent years, resulting in the lack of suitable investment channels for funds that could have been invested in the real estate industry.
Know that the real estate industry used to be a huge pool of funds, which could absorb trillions or even tens of trillions of yuan.
In the past, when the real estate market was underperforming, money could flow to financial markets, such as the A-share market, which is also a market that can absorb huge amounts of money.
However, since the end of the bull market in 2015, the A-share market has been underperforming, and it was even worse last year. The lack of earning potential means that the attractiveness of capital to investors is decreasing, which leads to the back-and-forth of funds from one financial institution to another, creating what is now known as financial idling.
Although China's money supply (M2) has now climbed to a massive size of 300 trillion yuan, the consumer price index (CPI) remains low, and there are no signs of inflation showing a significant increase in prices.
This begs the question: where exactly is this new money going? Some might think it's going to the real estate market, which has experienced explosive growth over the past two decades, with soaring housing prices and huge amounts of social capital.
However, since 2022, the real estate market has entered a stage of adjustment, and house prices have stopped rising continuously, but have a trend of stagnation or even decline.
Despite this, the growth rate of M2 has not slowed down, suggesting that funds are not entirely concentrated in the real estate market. In fact, the vast majority of funds are actually kept in the bank in the form of deposits.
According to the People's Bank of China, as of the end of March this year, China's RMB deposit balance reached 295 trillion yuan, an increase of 11.2 trillion yuan in the first quarter of this year alone, of which resident deposits increased by 8.5 trillion yuan.
This reflects the fact that in the first quarter of that year, bank deposits of Chinese residents increased by 8.5 trillion yuan, making total deposits continue to hit a record high.
Given the sheer size of China's population, even for low- and middle-income earners, if each person had saved 2,000 yuan, the cumulative total would easily exceed 1.2 trillion yuan.
In addition, the middle class and the affluent also account for a considerable proportion of their financial investment and savings in banks, which add up to a huge total figure. However, this growth in deposits is not a positive sign.
If the general trend is towards saving rather than consumption, it will be difficult for money to flow smoothly into the real economy, but will circulate within the banking system, and this pattern of capital flow will actually be detrimental to economic growth.
This situation arises because people lack confidence in the future, feel lost and uncertain, and therefore dare not consume and invest. Even among the wealthier groups, people are beginning to adopt a more conservative attitude towards consumption.
In order to stimulate consumption behavior, banks have been forced to continuously lower deposit rates, which has led to a significant decline in interest income on deposits, but even so, the amount of deposits of residents has continued to grow.
Only when the economy really begins to recover, people's confidence increases, and they are optimistic about the future, will consumers be willing to increase consumption, enterprises will be willing to expand the scale of production, investment activities will increase, the efficiency of the use of funds by the whole society will be improved, and the economy can achieve healthy and sustained growth.
Information sources:
"What does it mean for China's total M2 to exceed 300 trillion yuan?", China News Network