M2 has continued to fall in the near term, almost falling to the low point of the global financial crisis, and the expected rebound in September. There are some concerns in the market, but there are also opinions that are acceptable and talk about it here.
M2 growth rate andGDPThere is a lagging positive correlation in growth rate
For a long time, M2 has been the intermediate target of China's quantitative-based monetary policy regulation. The reason why M2 is the intermediate target, one is China.interest rateAlthough market-oriented reforms have continued to advance, they have not yet been completely completed. Second, credit has always been the main financing model in China, and M2 is the most direct reflection of credit credit derivation. In addition, credit is the main source of power for economic growth. Usually, the change in M2 growth rate reflects the consideration of the central bank's counter-cyclical adjustment. That is, when the economic downward pressure is high, the loose monetary policy is used to push the growth rate of M2 to stimulate economic growth, and vice versa. To prevent the economy from overheating. It can be seen that there is a "positive" influence relationship between the M2 growth rate change and the economic growth rate change theory.
In fact, domestic M2 growth rate and GDP growth rate do have a strong positive correlation in most periods; only in some time periods, M2 growth rate is inversely related to economic growth rate (Figure 1). These three abnormal periods are:Asian FinanceAfter the crisis (1999~2002), the US subprime mortgage crisis (2007~2008) and 2016 to date.
During the Asian financial crisis, China made a decision not to depreciate the renminbi. Although it was under pressure in the short term, it was beneficial to stabilize the domestic market environment afterwards. With the strong promotion of joining the World Trade Organization (WTO) and urbanization, the domestic growth prospects have given the monetary policy a large expansion space. The low growth rate of M2 for a period of time did not prevent the pace of economic growth, so M2 was negatively correlated with the GDP growth rate. The lag-related negative correlation during the US subprime mortgage crisis is largely due to the suddenness and destructiveness of the crisis. It has caused great damage to China's domestic export processing and financial institutions holding overseas related derivative assets. The rapid upward movement is difficult to stop the impact of the crisis on the real economy. Until the large-scale domestic stimulus plan was introduced, M2 and GDP resumed a lagging positive correlation.
In the past year or so, M2 has been in an abnormal state again, but the current financial environment is quite different from the previous two periods. The degree of domestic financial marketization has been continuously improved, and the size of credit money derived from financial market channels such as securities has become larger and larger, and the shortcomings of M2 in statistical caliber are constantly being demonstrated.
It is worthwhile to think deeply about the causes of the lag-related negative operating state of M2 and GDP, whether it will continue, and whether M2 will enhance the significance of regulating intermediate targets under the continuous advancement of financial deleveraging. In particular, as shown in Figure 1, although the bar that lags M2 and GDP growth by one year has contracted, it is still in a positive correlation. The current decline in M2 growth may be reflected in the economic operating pressure next year. In view of the current and future period, it is difficult to reproduce the strong economic growth factors in the early stage of WTO accession and urbanization, and the traditional demographic dividend is gradually drifting away. The lag effect of M2's decline on GDP needs to attract sufficient attention.
"Deviation from the virtual reality" may enhance the significance of the M2 growth rate macro indicator
With the gradual complication of the financial system, M2's monetary policy objectives have declined, and it is a universally accepted axiom conclusion. Since the 1980s, most developed economies have given up their monetary targets. Under the price-based regulation system, some countries that abandon quantitative targets to a large extent, the operational correlation between M2 growth rate and nominal GDP is gradually weakened.
The most recent example is the post-credit crisis. Developed economies such as the United States, Europe, and Japan have successively introduced quantitative easing (QE) policies. M2 in various economies has generally increased substantially, while economic growth has not improved. China's domestic exploration is at the stage of quantitative control of both quantity and quantity. The indicative role of M2 for the domestic economy depends to a large extent on its statistical caliber and internal structure. Judging from the lagging correlation between domestic M2 and domestic nominal GDP as shown in Figure 1, the current M2 target for the domestic economy still exists, and it is still significant in some time periods. However, it is undeniable that after years of innovation, development and expansion of domestic finance, the internal structure of M2 and the way of deriving generalized liquidity have quietly changed.
The correlation between credit growth rate and M2 growth rate may be strengthened again. Since January 2005, the role of credit channels in the creation of broad money M2 has experienced a decline and then rise. Using the ratio of various loans in the financial credit balance sheet to M2, it can be found that the proportion of various loan balances in M2 fell from 0.75 in January 2005 to 0.69. After 2015, between various loans and M2. The ratio returns to an upward trend. Of course, this has a significant relationship with the central bank's two adjustments in the M2 statistical caliber in October 2011 and early 2015, and enhanced the adaptability of M2 statistics.
The two caliber adjustments included the deposits of non-deposit financial institutions in the M2 statistics, and the financial institutions also used the loans obtained by non-deposit financial institutions to include the “various loans”. So that M2 is more widely includedbankCredit is the part of credit creation indirectly through non-bank financial institutions. Since the current round of financial deleveraging, the ratio of various loans to M2 has returned to 0.74. This indicates that the correlation between current credit growth rate and M2 growth rate may be strengthened again. The recent M2 growth rate may reflect the credit expansion degree of credit channels more than the previous period.
Of course, this does not mean that the operation of M2 is back to the state of ten years ago. It is necessary to pay attention to the securities and investment of financial institutions that have long been at a low level in credit creation. Since 2013~2014, this channel has gradually become an important channel for broad money creation, financial institutions with securities and investment and M2. The ratio has risen from around 0.15 before 2013 to around 0.30. This fully shows that with the continuous development and improvement of China's financial market, non-credit financing channels have become an important part of credit creation (Figure 2).
Cross-borderCash flowThe pattern of passive support for M2 growth may not be reproducible for a period of time. After the Asian financial crisis, the domestic economic growth prospects are optimistic, and China’s currency is affected by cross-borderCash flowThe impact is greater. Under the system of foreign exchange settlement and sales, the central bank passively put liquidity into the market, resulting in a continuous increase in foreign exchange holdings. In recent years, the developed economies, especially the US economy, have gradually recovered. Due to the gradual decline of the domestic economic growth rate, the continuous increase in foreign exchange holdings has led to a gradual change in the passive liquidity of the central bank. The ratio of foreign exchange holdings to M2 by the central bank also gradually dropped from the peak of 0.32 in November 2008 to the current 0.13. It is expected that in the future, it will be difficult to reproduce the phenomenon of continuous foreign capital inflows and increase domestic liquidity. Domestic liquidity creation will still depend mainly on credit-derived channels and securities investment channels of financial institutions.
The credit creation function of credit under “deviation from reality” may be slightly enhanced. The current round of M2 decline was mainly affected by financial deleveraging, and the credit creation function of financial institutions' securities investment channels was suppressed. In the first half of 2017, not only the net increase in credit bonds continued to be negative, but also the national debt and local bonds accompanied by the money market.interest rateThe level has risen and the issuance progress has slowed down at the same time. In view of the gradual improvement of domestic cross-border capital outflows this year, the central bank's foreign exchange growth rate rebounded from -12.92% in November 2016 to -8.23% (Figure 3).
In sharp contrast, financial institutions' portfolio investment fell to 17.03% from 41.28% at the end of last year. In the past two years, the growth rate of various loans has not changed much overall, and it is still at a stable level of 12.97%. Considering the “sinking effect” of local debt swaps on credit growth, the credit growth rate in the past two years may not be lower than the level before the implementation of debt swaps (Figure 4). In the short term, the trend of regulatory strengthening will not change, and market interest rates may gradually stabilize under the control of the central bank. The credit creation growth rate of financial institutions' investment channels may be stabilized, while financial de-leverage leads to the return of the table. The credit creation function of credit channels may be slightly enhanced. This may enhance the policy objectives of the current M2 growth rate to a certain extent.
Future M2 growth rate may stabilize and rebound slightly
Social growth and credit growth did not support the continued decline in M2 growth. From the synchronization of the growth trend, the current growth rate of M2 has dropped from 13.3% at the end of 2015 to 8.9% in August 2017, while the growth rate of social financing scale during the same period has dropped from the recent peak of 13.3% in early 2016. 12.5% in March. After the second quarter of 2017, the growth rate of social welfare is improving. It can be seen from the difference between the growth rate of social welfare and the growth rate of credit. The main impact of this round of financial de-leverage is the contraction of off-balance sheet financing. The process in the off-balance sheet also supports the growth of credit and the proportion of credit in social integration. From the synchronization of the previous growth rate of social welfare and the decline of M2 growth rate, it is speculated that the current trend of growth rate of social welfare may make the growth rate of M2 gradually stabilize or even rebound further. The time required for the growth of the M2 growth rate and the degree of rebound depend on the operation of the domestic real economy in the future. Of course, the impact of the macro-liquidity tightening and the decline of M2 growth rate since the current round of financial de-leverage and supervision has been strengthened. The rise of the money market interest rate in the early stage may push up the financing cost of the entity and affect the growth of the direct financing market. . As credit accounts for a new increase in social financing, the contribution of intra-table channels to credit creation has once again increased. The positive correlation between the recent M2 and GDP growth lags for one year (Figure 1) indicates that the current tight liquidity pressure may continue to affect next year.
Although the directional reduction is not a water release signal, it may form a certain support for the M2 growth rate in the coming year. At the end of the third quarter, the central bank announced the directional RRR cut policy initiated in 2018, and further expanded the coverage of the original targeted RRR. This will help improve the expectations of the current long-term liquidity pressure of banking financial institutions. More importantly, the re-use of targeted RRR is largely in line with financial de-leverage and “de-fashion-oriented” policy guidance. Compared with comprehensive RRR reduction, it has the advantage of guiding and regulating the flow of financial resources.
Since the directional RRR has not been substantially landed, it will not significantly increase the M2 growth rate in the short term. The “supportive” impact of the targeted RRR cut policy on the future growth trend of M2 is likely to wait until the central bank’s assessment of the first loan structure of banking financial institutions in 2018. However, it cannot be ignored that in the “buffer period” of the central bank reserved for about three months, due to the certainty expectation of the future targeted RRR decision, the banking financial institutions will increase their efforts on the relevant loans supported by the policy. The M2 growth rate may also gain support from the credit channel “in advance”, although this support effect is constrained by bank liquidity.