Why did the increment of social finance show a rare negative growth in April?

The Economic Observer

2024-05-12 14:03Published on the official account of Beijing Economic Observer

On May 11, 2024, according to the financial statistics and social financing scale (hereinafter referred to as "social financing") data released by the People's Bank of China (hereinafter referred to as the "central bank"), the Economic Observation Network found that new RMB loans in April were 730 billion yuan, an increase of 11.2 billion yuan over the same period last year; The increase in social financing in April was -198.7 billion yuan, and the increase in social financing in April last year was 1.22 trillion yuan.

Affected by social financing and other factors, the growth rate of money supply declined. Narrow money (M1) fell 1.4% year-on-year in April, while broad money (M2) grew 7.2%, a record low. Ming Ming, chief economist of CITIC Securities, said that the decline in money supply is mainly due to the "squeezing of water" by the regulator on some non-compliant deposit products, and it is also related to the current more diversified wealth management methods, which cannot be interpreted as a decline in the ability of finance to support the real economy; On the contrary, the supervision of deposits will help revitalize funds and help finance better support the recovery and development of the real economy. Some scholars also believe that in terms of boosting market confidence and expectations, it is necessary to speed up the adoption of more effective measures.

Financial data fluctuated in April, and social finance showed negative growth

According to central bank data, the cumulative increase in social financing in the first four months of 2024 was 12.73 trillion yuan, and the cumulative increase in social financing in the first quarter of 2024 was 12.93 trillion yuan. Therefore, the increase in social financing in April was -198.7 billion yuan.

The increment of social financing refers to the amount of funds that the real economy receives from the financial system in a certain period of time. It includes direct financing such as corporate bonds and government bonds, as well as indirect financing such as RMB loans and foreign currency loans.

From the perspective of social finance, government bonds, corporate bonds and undiscounted bank acceptance bills dragged down the April data. Net financing of government bonds in April increased by 98.4 billion yuan, 553.2 billion yuan less than that in April 2023.

Ming Ming believes that the scale of government bonds has declined because the issuance of national bonds and local bonds has been slow. Considering factors such as the decline in land transfer fees, the slow progress of special bond issuance, and the limited financial resources of local governments, the follow-up government bond financing will be accelerated, which is expected to give a significant boost to social finance.

In April, the new scale of corporate bond financing was 49.3 billion yuan, a year-on-year decrease of 244.7 billion yuan. Undiscounted acceptance bills decreased by 448.6 billion yuan, a year-on-year decrease of 314.1 billion yuan, mainly due to the impulse of bank bills and the decline in the willingness of enterprises to issue bills.

In terms of RMB loan data (also known as credit data), it was basically unchanged from the same period last year. April was a small month for traditional credit, with new RMB loans of about 730 billion yuan in April 2024. However, from the perspective of credit structure, the phenomenon of bill impulse is obvious.

In April, loans to enterprises (institutions) increased by 860 billion yuan. Among them, short-term loans decreased by 410 billion yuan, medium and long-term loans increased by 410 billion yuan, and bill financing increased by 838.1 billion yuan. Wen Bin, chief economist of China Minsheng Bank, said that the demand for corporate loans weakened seasonally in April, but the provision of long-term loans to the public remained stable, which is still an important force to support new credit. Under the constraints of demand, in order to stabilize the pace of credit delivery, some banks still have the need to fill in the scale of bills.

Household loans (also known as household loans) showed negative growth. Resident loans mainly include short-term loans such as consumer loans and business loans, and medium- and long-term loans such as housing mortgage loans. Resident loans decreased by 516.6 billion yuan in April, 275.5 billion yuan more than in April 2023. Among them, short-term loans and medium- and long-term loans to residents decreased by 351.8 billion yuan and 166.6 billion yuan respectively.

The growth rate of the money supply has declined

The slowdown in financing demand has led to a deceleration in the money supply. At the end of April, the balance of M2 was 301.19 trillion yuan, a year-on-year increase of 7.2%. The balance of M1 was 66.01 trillion yuan, down 1.4% year-on-year. M1 turned negative year-on-year, and M2 fell to a record low year-on-year.

At present, the currency of the mainland is divided into three levels: M0, M1 and M2. M0, or what we often call "cash", is the most active and the most liquid; M1 is M0 plus a unit demand deposit with slightly weaker liquidity; M2 refers to M1 plus less liquid unit time deposits, resident deposits, etc. Therefore, M1 is referred to as the narrow money supply; M2 is the broad money supply.

Ming Ming said that the obvious decline in the growth rate of money supply is mainly due to the fact that since April, many deposit funds have been transferred to asset management products such as bank wealth management under the background of seasonal factors and strict supervision of manual interest supplements. Judging from the changes in deposits of various departments, in April, residents' deposits decreased by about 650 billion yuan year-on-year, corporate deposits decreased by about 1.7 trillion yuan year-on-year, and government deposits decreased by about 400 billion yuan year-on-year. The decrease in deposits of residents and enterprises confirms the phenomenon of "deposit moving", and the year-on-year decrease in fiscal deposits is mainly due to the slow process of government bond issuance, considering that government bond financing decreased by 550 billion yuan compared with the same period last year, which reflects that the current pace of fiscal expenditure may have slowed down marginally.

At the end of April, the "scissors gap" between M2 and M1 growth rates widened. Wen Bin believes that the growth rate of M2 has slowed down, but the quality and efficiency of the financial system to serve the real economy have been further improved. The slowdown in the growth rate of the money supply is affected by a combination of factors. First, since the beginning of the year, the bond market has been bullish to boost the yield of asset management products such as wealth management, and bank deposits have been diverted to wealth management. Second, the regulatory authorities have increased the regulation of idling arbitrage of funds and manual interest payments by banks, and squeezed out some of the inflated deposits and loans. Third, the accounting of the added value of the financial industry has been optimized, and the motivation of individual local governments to increase the added value of finance through the expansion of deposits and loans has been significantly weakened. In the coming months, the growth rate of money supply should stabilize as the financing demand of the real economy gradually improves, the financing of the government sector accelerates, and the bond market gradually returns to the fundamental logic.

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