Times Economic Eye丨Change the algorithm "good medicine and bitter mouth" The financial industry's "defattency" has a far-reaching impact

Securities Times reporter Jiang Dan, He Jueyuan, Sun Lulu

Since the beginning of this year, the year-on-year growth rate of broad money (M2) and narrow money (M1), which reflect the money supply, has shown a slow downward trend, and the decline was even more obvious in April.

As of the end of April, the year-on-year growth rate of M2 fell by 1.1 percentage points from the previous month, and the year-on-year growth rate of M1 fell by 2.5 percentage points from the previous month to turn negative.

As an important indicator to observe the operation of the financial industry and affect the gross national product, what is the significance of the adjustment of the quarterly accounting method of added value of the financial industry at the current point in time? Will it bring about "short-term disruptions" or systemic change? Focusing on these issues, the Securities Times interviewed a number of experts and scholars.

From focusing on the size of deposits and loans to focusing on net income

Since the beginning of this year, the National Bureau of Statistics and the People's Bank of China have adjusted and optimized the accounting methods of the financial industry and revised the quarterly accounting plan for the added value of the financial industry.

In the accounting method of quarterly data, the added value of the financial industry is divided into four categories according to the financial service field: monetary financial services, capital market services, insurance and other financial industries. Previously, the added value of the monetary and financial services industry, the main component of the monetary services industry, was mainly estimated with reference to the year-on-year growth rate of the quarterly deposit and loan balance. After this adjustment, the calculation of the added value of the monetary financial services industry has been changed from the previous method based on the growth rate of bank deposits and loans to the accounting based on indicators such as net interest income, fee and commission income.

Focusing on the accuracy of the data and the scientificity of the composition of the indicators, the academic community has been discussing the adjustment of the quarterly accounting method of the added value of the financial industry for many years. According to Zeng Gang, director of the Shanghai Finance and Development Laboratory, the current adjustment is related to the increasing proportion of non-interest income (net fee and commission income) in the banking industry in recent years.

"The previous accounting method did not include non-interest income, which could not truly reflect the current situation of the development of the financial industry. After this adjustment, non-interest income such as net fee and commission income is included, which can more accurately reflect the current situation of the development of the mainland banking industry. Zeng Gang told the Securities Times reporter that in addition, the optimized accounting method mainly refers to the bank's profit index, which is conducive to eliminating the impulse of local and some banks to simply expand their scale.

"Squeeze water" and "get fat" are high-frequency words that have been reported around this topic recently. Zeng Gang said that according to the previous statistical rules, as long as the scale of deposits and loans is expanded as much as possible at the end of the quarter, the added value of the regional financial industry can be increased "immediately", which in turn will boost the regional gross domestic product (regional GDP). Under the pressure of task assessment, the relevant departments have the impulse to push the bank to expand the scale of the corresponding indicators, and it is difficult to avoid lending for the sake of lending, and excessive and simple pursuit of scale.

At present, the mainland has accumulated a large scale of deposits and loans, and optimizing the allocation of resources and improving the quality and efficiency of financial services have become the key tasks of the financial system. Recently, whether it is prohibiting "manual interest supplementation" or regulating the "low loan and high deposit" idling arbitrage of enterprises, it is the correction of the current business model and thinking inertia of financial institutions and enterprises by the regulatory authorities. In the opinion of the interviewed experts, by adjusting the algorithm, financial institutions will be forced to carry out financial activities in compliance and reasonable, which is also one of the links of this round of financial "squeezing".

"Financial development needs to consider not only scale, but also quality, which is also the key to promoting the mainland's financial development from big to strong." Liang Si, a researcher at the Bank of China Research Institute, told the Securities Times.

The volume and price of the "fat" financial industry

At present, the financial sector accounts for about 8% of the mainland's GDP. In terms of regions, the added value of the financial industry in some financially developed provinces and cities accounts for more than double digits in the regional GDP, and some even reach 20%. Due to the great impact of the development of the financial industry on the national economy, the "inflated" added value of the financial industry is not conducive to accurately and objectively judging the economic operation, and will also affect the tracking and judgment of the effect of macroeconomic policies. Therefore, it is imperative to seek more scientific accounting methods, which are also an important reference for policy decision-making.

Recently, a reporter from the Securities Times interviewed Professor Wu Xiaoying, director of the Growth Laboratory of Peking University Development Institute. Wu Xiaoying told reporters that this question can only be answered under certain assumptions. He said that considering the current stage of development of China's economy, including the degree of development of the capital market, the growth rate of the financial industry serving the overall economy should be lower than or not higher than the GDP growth rate.

In the first quarter of 2023, the added value of the financial industry increased by 6.9% year-on-year, far exceeding the GDP growth rate of 4.5% in the same period. In contrast, the adjusted value added of the financial sector in the first quarter of 2024 increased by 5.2% year-on-year, while GDP grew by 5.3% over the same period, which is roughly the same. Assuming that other factors remain unchanged, it may be said that the added value of the financial industry in the first quarter of 2023 is indeed somewhat "fat".

So, what is the nature of the so-called "fat" or "moisture" of the added value of the financial industry? Wu Xiaoying said that this needs to be looked at from both the volume and price, and the nominal added value is the common result of quantity and price. Because prices change from year to year, the calculation of real growth rates must exclude price factors.

From a quantitative point of view, the value added of the financial sector comes from the actual services provided by the financial sector for all economic activities. The price of real services is closely linked to macroeconomic policies. The expansionary financial policy under the policy of "maintaining growth" and the pressure on deposit and loan indicators will prompt some banks to pursue an inflated scale of deposits and loans, and the balance of deposits and loans is not accurate.

From a price perspective, the same financial services may have to pay higher fees or commissions under expansionary monetary policy, but the higher fees are only the price of the service, not the volume of the service. If such prices cannot be deflated, the growth rate of value added in the financial sector will be overestimated. The question is how to squeeze this "moisture" out? In the technical terms of national accounting, how to deflator the nominal value added?

Wu Xiaoying explained that an important indicator for measuring the added value of the financial industry is the labor productivity of the financial industry. Just as GDP growth is the result of both labor productivity growth and labor force growth, if a financial practitioner is able to handle the same amount of a certain business in a day, then the fee or commission he receives will increase, which can only be the result of financial expansion.

"Measuring the price deflator in services such as the financial sector is very complex, and many countries estimate changes in the value added of services based on the number of workers and assuming that labor productivity remains constant over a period of time. I prefer to use changes in the number of workers adjusted for human capital to estimate the real value added of services such as finance, bypassing the price problem. He said.

Finally, Wu Xiaoying further said that the process of economic growth of an economy is the process of rising costs, because the products of the non-tradable sector (services) will become more and more expensive in the tradable sector (manufacturing) where relative productivity is rising rapidly and prices are falling rapidly.

"The growth of the added value of many service industries is actually a cost phenomenon, that is, the so-called 'Baumore cost disease' in economics. If the overall economic growth slows, but the financial growth is fast, isn't that a rising cost? He stressed that the only factor in overcoming rising costs is to increase productivity, which requires not only technological innovation, but also an improved institutional environment for innovation. If the productivity problem is not solved, over-reliance on financial expansion will only push up service prices, not efficiency. If such prices cannot be deflated, the result will be that the growth rate of the financial sector is "inflated".

Periodic perturbation or persistent appearance

At the end of April, the year-on-year growth rate of M2 and M1 declined significantly compared with the previous month, which was the "fuse" for the optimization and adjustment of value-added accounting in the financial industry. In the short term, Zhang Yu, deputy director and chief macro analyst of Huachuang Securities Research Institute, said that due to the adjustment of accounting methods, the momentum of local governments to increase the added value of the financial industry by supervising deposits and loans has weakened significantly since April, and the relevant impact may continue to appear during the year.

Some analysts also believe that the disturbance of the optimization of accounting methods on the growth of money and credit may be concentrated in the second quarter, and will continue to have an impact in the second half of the year. In particular, when compared with the same period last year, the calculated year-on-year increment and year-on-year growth rate will be more affected, and the related disturbances may continue until next year before they are expected to gradually fade.

"In the long run, the competition in the deposit market may stabilize, the cost of bank savings is expected to fall, and the supply of loans will also change, which is conducive to the return of interest margins to a relatively normal state." Zeng Gang said.

Liang Si believes that the new accounting method not only pays attention to the scale of banks, but also pays more attention to the operating performance of banks, and to a certain extent, will guide banks to take measures to improve the quality and efficiency of operations and profitability, which is also conducive to promoting the healthy development of the banking industry.

After calculating the adjusted quarterly value-added accounting standard of the accounting method, the macro team of Industrial Research pointed out that if the issuing banks are used as the sample value of the banking industry, and the net interest income and fee commission income are used as the benchmark indicators, the change in the growth rate of the bond issuing bank is consistent with the change in the value-added of the financial industry from 2015 to 2023. "But now, as interest rate spreads in the banking sector continue to narrow, both income growth rates have been negative since 2023. It is expected that the adjustment of the quarterly value-added caliber may lead to a decline in the quarterly value-added growth rate of the financial industry, and therefore the proportion of the bank's GDP will also decline. ”

Although market institutions expect that the decline in the growth rate of added value of the financial industry may be unavoidable, a number of interviewed experts still pointed out that the added value data of the financial industry after squeezing out the "water" will more accurately reflect the actual profitability of the financial service business and reflect the contribution of the financial industry to support the real economy.

Some people from other institutions interviewed by this reporter believe that the impact of the adjustment of accounting methods on the quarterly GDP and quarterly GDP remains to be seen. For example, at present, the development of direct financing is accelerating, and in the future, with the further expansion of the scale of bonds such as over-the-counter bonds and corporate bonds, these investment and financing activities will not be realized through traditional bank deposit and loan business, but will be reflected in the accounting of capital market service indicators.

More indicators need to be improved

According to the division of financial services, in addition to monetary financial services, the objects of value-added accounting of the financial industry also include capital market services, insurance and other financial industries. Zeng Gang believes that there is still room for improvement in the value-added accounting of non-bank financial institutions.

Expanding the scope of accounting for the added value of the financial sector is also considered to be conducive to improving the large fluctuation of the value added of the financial sector as a proportion of GDP. A number of studies have pointed out that the proportion of added value of the mainland's financial industry fluctuates more than that of developed and developing countries.

According to the Industrial Classification of the National Economy, which came into effect on March 29, 2019, other financial industries include financial trust and management services, trust companies, etc. Fang Lijuan, a member of the statistical survey team of Luohu District, Shenzhen, once pointed out that in recent years, with the further integration of finance, science and technology, and the Internet, many new financial formats have emerged, and in accounting, traditional financial accounting dominated by financial institutions such as banks, securities, and insurance still dominates, and some "new finance" and "pan-finance" are outside the statistical scope of value-added accounting of the financial industry.

Fang Lijuan pointed out that some companies distribute the company's stock options to employees, and most of the income obtained by employees by holding stock options is not included in the accounting of employee compensation. In the value-added accounting of the income method, it is necessary to refer to international practices and the actual situation in mainland China, and include the stock options held by employees in the calculation of workers' compensation, so as to more truly reflect the development of the financial industry and the level of contribution. There are also similar situations in the housing provident fund center, the establishment of business divisions engaged in finance-related business by some enterprises, credit card clearing institutions and other departments, and the interest rate difference income in daily business is not reflected in the added value of the financial industry.

The National Bureau of Statistics previously revealed in its reply to the relevant recommendations of the National People's Congress that for the basic indicators of the quarterly accounting of the added value of other financial industries, the growth rate of RMB loan balance is used as the basic indicator, and the statistical scope of RMB loan balance not only includes traditional deposit and loan financial institutions such as banks, but also covers trust and investment companies, financial leasing companies, auto financial service companies, loan companies and other non-deposit and loan financial institutions that have emerged in recent years, which are mainly supervised by local governments. There is only a lack of two emerging financial activities, microfinance and consumer finance, which can generally reflect the overall development trend of other financial industries.

Editor-in-charge: Li Dan

Proofreading: Gao Yuan

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