April's financial data issued a strong warning that monetary easing, which lacks economic reform, is ineffective

Mars macroscopic

2024-05-13 05:04Posted in Hunan Finance and Economics Creators

Executive Summary:

There was a rare contraction in the currency in circulation, with M2 down 1.2% and M1 down 3.7% QoQ. Residents' deposits and loans both fell, and the household sector continued to shrink its balance sheet. Enterprises' willingness to invest is cold, and deposits and loans in the enterprise sector have also dropped sharply. The abnormal financial data issued a strong warning, and the unilateral monetary easing policy lacking economic reform has basically failed.

In a very unexpected move, the central bank deliberately scheduled the release of financial data for April on Saturday afternoon, following the release of seemingly acceptable export data from customs and the seemingly okay price data from the National Bureau of Statistics. What is quite meaningful is that in the financial data report, the central bank also deliberately only gave the increment of the first four months, and did not disclose the specific data for April.

1. Currency in circulation contracted rarely, with M2 decreasing by 1.2% month-on-month and M1 decreasing by 3.7% month-on-month.

At the end of April 2024, the balance of broad money (M2) was 301.19 trillion yuan, a year-on-year increase of 7.2% from 8.3% in March, and a rare contraction of 3.6 trillion yuan, or 1.2%, from the previous month. The balance of narrow money (M1) was 66.01 trillion yuan, from an increase of 1.1% in March, to a year-on-year decrease of 1.4% and a month-on-month contraction of 3.7%.

Yicai believes that the growth rate of M2 has dropped significantly because 2023 is the first year after the epidemic is released, resulting in a high base. However, even from the two-year average growth rate from 2023 to the end of April 2024, which excludes the impact of the base, the average growth rate of M2 reached 9.8%. Since 2018, M2 has rarely grown below 7% year-on-year.

Zhang Yu, chief macro analyst of Huachuang Securities, and others believe that the "move" of deposits has caused M2 to fall. According to this viewpoint, residents' enthusiasm for purchasing wealth management has increased, bank deposits have been diverted and transformed into non-bank products such as wealth management, non-bank institutions have abundant funds, and the demand for borrowing money from banks to purchase bonds has decreased.

But the actual data does not support this claim. Because of the new deposits of non-bank financial institutions in March and April, they flowed out of 147.5 billion yuan and 621.2 billion yuan respectively.

Therefore, the so-called view that the growth rate of asset management products has rebounded rapidly, diverted bank on-balance sheet deposits to a large extent, and monetary liquidity has remained reasonably abundant is untenable.

Second, residents' deposits and loans both fell, and the residential sector continued to shrink its balance sheet.

In April, new loans to the household sector decreased by a net of 516.6 billion yuan, the third net decrease in household loans in April since 2022. And the reduction amount has been enlarged year by year, with a decrease of 217 billion yuan in April 2022 and 241.1 billion yuan in April 2023. However, in April this year, the reduction was expanded by 1.1 times year-on-year.

From January to April, the household sector added 828.3 billion yuan in new loans, a year-on-year decrease of 64%.

At the same time, deposits in the household sector have also fallen sharply. In April, the net decrease was 1,875.5 billion yuan, a year-on-year decrease of 1.73 trillion yuan. From January to April, deposits in the household sector decreased by 1.8 trillion yuan, compared with a net increase of 2.9 trillion yuan in the same period last year.

Judging from the trend of both deposits and loans in the household sector, due to the continuous contraction of real estate sales, the retail sales of automobiles announced by the Passenger Association in April also fell by 5.7% year-on-year, which should belong to the fact that on the one hand, residents are very cautious about new housing investment and commodity consumption, resulting in the contraction of resident loans, on the other hand, because the debt income of our household sector exceeded 140% last year, and the interest income ratio also exceeded the growth rate of disposable income, resulting in the household sector in order to reduce debt risk and debt burden. Proactively repay loans early and repair balance sheets.

This point of view Saburo gave a trend judgment in April last year when analyzing the financial data for the first quarter. In retrospect, this judgment was valid.

Third, the willingness of enterprises to invest is cold, and the deposits and loans of the enterprise sector have also dropped sharply.

In April, although corporate lending had not deteriorated to the point of net decline like the residential sector, the willingness of enterprises to increase lending was relatively low in the face of historically low lending rates.

In April, enterprises added 860 billion yuan in new loans, which seems to be an increase of 170 billion yuan year-on-year, but after deducting 838.1 billion yuan of bills, the real willingness to borrow is less than 30 billion yuan. Among them, the new medium and long-term borrowings were 410 billion yuan, which was a low level in recent years. The short-term loans of enterprises with a maturity of less than one year decreased by 410 billion yuan.

From January to April, new loans to enterprises were 8.6 trillion yuan, a year-on-year decrease of 11%. This reflects the low willingness of enterprises to expand reproduction, such as new investment projects, equipment modifications, etc.

New deposits from non-financial companies contracted even more sharply. Although over the years, due to tax payment and loan repayment in April, corporate deposits have generally decreased netly, such as a net decrease of 355.6 billion yuan, 121 billion yuan, and 140.8 billion yuan from April 2021 to April 2023, respectively. In April this year, however, the decline was particularly severe, with a net decrease of 1,875.5 billion yuan in deposits of non-financial enterprises in April this year, nine times the average in April of the previous three years.

From January to April, corporate deposits decreased by 1,769.4 billion yuan, compared with a net increase of 2,934.1 billion yuan in the same period last year. The net decrease in new deposits of enterprises, from a financial point of view, means that the production and operation of enterprises should be in a state of contraction.

Fourth, the abnormal financial data issued a strong warning, and the unilateral monetary easing policy lacking economic structural reform has basically failed.

Our current round of interest rate cuts, RRR cuts, and monetary easing began in the second half of 2021 and has been nearly three years since then. But the central bank has never responded publicly, why has it been cutting interest rates and RRR cuts, monetary easing, corporate investment willingness is still not high, and residents' consumption willingness is still sluggish?

In fact, we all know, and Yellen also told us very directly, that our current economic predicament is mainly due to insufficient demand and oversupply.

Oversupply, prices are falling, and the price signal PPI on the supply side has fallen for 19 months year-on-year, down 2.5% year-on-year in April; The Producer Price Index also fell for 14 months year-on-year, falling 3% year-on-year in April. Under the guidance of such a strong price signal, enterprises naturally dare not blindly invest in production expansion.

The lack of residents' demand is not due to the fact that some experts and scholars who are divorced from reality and far from the bottom judge that they have money and are unwilling to consume, but that they really have no money to spend.

Although as of April, the balance of deposits in the residential sector was as high as 143.7 trillion yuan, and the per capita deposit exceeded 10 trillion yuan. However, due to the fact that on the one hand, the working capital of self-employed and flexible employees is mixed in, and on the other hand, 20% of the middle and upper income class own 80% of the deposits, in fact, nearly half of the Chinese have a monthly disposable income of no more than 1,500 yuan, and the deposit in the deposit account does not exceed 4 figures.

When asset prices are in a downward phase, the wealthy middle and upper income classes will not invest, and the middle and low income classes without money will also want to buy a house or a car in vain, because their first priority is to try to maintain the basic livelihood of the family.

This is the basic reason why no matter how the central bank cuts the reserve requirement ratio and interest rates, the household sector is not willing to lend for consumption, but takes the initiative to repair the balance sheet.

The only way to get out of this predicament is to deepen the reform of the economic system.

First, it is necessary to reform the income distribution system and distribute a greater proportion of national income to laborers;

Second, it is necessary to reform the social security system, narrow the gap between government agencies, institutions, enterprises, and peasants in social security and medical insurance, so that all citizens can consume more without worries;

Third, it is necessary to reform the mode of economic development and shift from the mode of investment to the mode of consumption as soon as possible.

Fourth, it is necessary to reform the factor distribution system, and the government must take the initiative to give up control over resources and capital factors and establish a complete factor market.

[Author: Xu Sanlang]

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Personal opinion, for reference only