Text: Ren Zeping's team.
Summary. In 2023, there will be two RRR cuts and two interest rate cuts, and the strength of monetary easing is not insignificant, but the credit easing is not obviousWhere did the money go?
There are six major features of the current monetary situation:
First, from the perspective of **, credit delivery is the main currency derivation channel, and more than eighty percent of M2 is derived from credit.
Second, from the perspective of destination, personal deposits are the mainstay, and deposits are showing a trend of fixed, with the proportion of unit fixed deposits increasing from 10% in 2020 to 28% in 2023.
Third, from the perspective of rhythm, this year's monetary supply is fast and slow, the proportion in the first quarter is significantly higher than that of seasonality, and the new M2 in the first quarter increased by 30 year-on-year89%。
Fourth, from the perspective of supply and demand, there is more money supply but less demand, and the growth rate of M2 and the scale of social financing have diverged, with an average difference of 214%。
Fifth, the scissors gap between M1 and M2 has widened, pointing to a decrease in the degree of capital activation, and the year-on-year growth rate difference between M2 and M1 in 2023 will increase from 5 in January9% expanded to 8 in October4%。
Sixth, interbank liquidity has tightened, and the interest rate pivot has moved upward, and DR007 will be significantly higher than the policy rate from August 2023.
Where did the high increase in m2 go?Why is there a structural imbalance?According to Fisher's equation MV=PQ, although the current monetary ** is large, the response of output and price index is relatively flat, and the real estate, ** and other major types of assets ** have not been significantly improved, so it may be necessary to focus on the velocity of money V.
Behind the decline in the speed of money circulation is the slowdown of the general circulation of monetary funds among residents, enterprises and localities. First, residents' income expectations are unstable, consumption is more cautious, and precautionary savings have emergedSecond, the real estate market is expected to be unstable, and residents' willingness to buy houses and increase leverage is lowThird, residents do not dare to consume, which means that the currency exchange between residents and enterprises is blocked, so M1 is relatively sluggish;Fourth, due to the lack of activity of market entities and the drag of land finance, local tax revenue and land sales revenue have slowed down, although relying on special bonds to maintain infrastructure growth, but the capital turnover is slow.
Development is the foundation for solving all problems. Boost market confidence. A package of economic stimulus plans has been introduced, fiscal and monetary policies have been strengthened, new infrastructure, new energy, artificial intelligence and other new-generation technologies have been developed, fertility has been encouraged, and new growth points have been cultivated. It is believed that after a series of long-term and short-term boosts and reform measures, time for space, China's economic prospects are bright.
Body. So far in 2022, we have invested nearly 50 trillion m2, and in 2023, we will cut the reserve requirement ratio twice and cut interest rates twice. Has Monetary Policy Failed?Where did the money go?
1 m: a new feature of money supply.
Monetary policy continues to drive economic recovery, but monetary injection and market reaction are divergent. In 2022, the new M2 will be as high as 28 trillion, and the annual increment will hit a record highAs of October 2023, M2 continues to add 21 trillion yuan, maintaining a record high. In 2023, the central bank will cut the reserve requirement ratio twice to release liquidity, and on November 15, the central bank will continue to make MLF with a net investment of 600 billion yuan, the highest level since December 2016.
In terms of aggregate amount, broad money has increased rapidly, and the structure has shown the following new characteristics:
First, from the perspective of currency, credit is the main currency derivation channel, and the impact of finance on M2 has gradually increased in recent years. M2 is mainly completed by the central bank, banks and three main entities, mainly including foreign exchange appropriation, ** expenditure, credit and other non-standard investment channels. In recent years, the high growth of broad money has been mainly due to the contribution of credit, the impact of foreign exchange has gradually decreased, and the fiscal impact has gradually become prominent.
Second, from the perspective of the direction of currency, personal deposits are the mainstay, and deposits show a trend of regularization. From the perspective of stock structure, the proportion of unit fixed deposits in M2 increased from 10% in 2020 to 28% in 2023, reflecting the tendency of corporate deposits to be fixed in the face of insufficient confidence and expectations. From the perspective of industries, the balance of medium and long-term loans in the manufacturing industry remained high year-on-year, and the real estate industry remained low year-on-year.
Third, from the perspective of the pace of currency delivery, 2023 will be fast and slow. In 2023, China's broad money M2 will generally remain high, but the growth rate will be faster and then slower. In the first quarter, it continued to maintain high investment under the high base of 2022, which was significantly higher than the seasonality, and gradually slowed down in the second and third quarters. The high demand for overdraft credit in the first quarter and the poor financing demand since the second and third quarters have slowed down.
Fourth, from the perspective of supply and demand, there is more money supply but less demand, and the scale of social financing and the growth rate of M2 diverge. In April 2022, the year-on-year growth rate of M2 exceeded that of social finance, and the gap will continue to widen in 2023, pointing to the fact that the real economy receives less funds from the financial system. Affected by earnings expectations and confidence, the financing demand of the real economy is insufficient.
Fifth, the widening of the scissors gap between M1 and M2 points to a decrease in the degree of capital activation. The difference between the year-on-year growth rate of M1 and M2 in 2023 will increase from 5 in January9% expanded to 8 in October4%。First, the willingness of residents and enterprises to invest and consume is low, and deposits are showing a trend of regularizationSecond, the real estate market is weak, and it is difficult for residents' deposits to be converted into corporate demand deposits.
Sixth, interbank liquidity has tightened. Since August, with the acceleration of local bond issuance, superimposed trillions of special refinancing bond issuance, DR007 pivot has moved upward, significantly higher than the policy rate, and interbank liquidity has become tighter.
Where did the high increase in m2 go?Why is there a structural imbalance?According to Fisher's equation, the amount of money in a certain period of time multiplied by the velocity of money is equal to the level multiplied by the actual total volume of transactions, i.e., MV=PQ. We dismantle each item one by one, and strive to fully show the ** and whereabouts of the currency, and find the crux of the currency circulation.
2 q: Increases output, but has limited effect.
According to Fisher's monetary quantity equation MV=PQ, PQ on the right side of the equation measures the change in economic fundamentals. By analyzing the GDP data, it can be seen whether the change in output is consistent with the amount of money.
Since 2022, although M2 growth has remained high, GDP growth has lagged behind M2 growth, and monetary supply has had a limited role in promoting economic recovery. This trend continued in the third quarter of 2023, with a cumulative M2 of 1028%, but nominal GDP is only **4 year-on-year38%, real GDP year-on-year **525%: M2 growth rate is nearly 6 percentage points faster than nominal GDP growth and 5 percentage points faster than real GDP growth. In an accommodative monetary environment, aggregate output has improved but has been less compatible with monetary growth.
3 P: No significant increase in prices.
The P on the right side of the Fisher-Price equation MV=PQ refers to prices in the traditional sense, but in recent years, asset ** has also been regarded as a reflection of the broad sense**. Therefore, when the currency increases highly, there will be two major transmission effects: one is reflected in the real economy, which is manifested as raising prices and triggering inflation;Second, it is reflected in the large categories of assets, which is manifested in the improvement of assets, that is, real estate
In terms of the real economy, M2 growth generally supports real economic growth while pushing up prices, but the price index has been relatively subdued recently. The average year-on-year difference between M2 and CPI in each month of 2023 is 1117%, and the average year-on-year difference between M2 and PPI was 1462%, both at an all-time high. There are two reasons why prices have not increased significantly, one is that there is a lag, and it will take time for the M2 leading indicator to transmit the price lag indicator in the futureSecond, the internal vitality of economic recovery is weak and demand is insufficient.
4 p: No significant asset improvement**.
In terms of large types of assets, this round of M2 is growing at a high rate, and large types of assets are not. As of the third quarter of 2023, the growth rate of first-, second- and third-tier residential buildings** compared to the end of 2021 was respectively. 24%、-0.98%；The CSI 300 index fell 2532%, and the GEM index fell by 3969%, and the STAR 50 index fell 3650%, and the value of public offering ** holding a** is also increased by 703 trillion fell to 537 trillion. In the bond market, the yield on 1-year Treasury bonds fell by 31% over the same period75 bps, down 10 percent over 10 years37 bp;In terms of wealth management, the income of 3-month and 6-month wealth management products increased from 281% vs. 315%, a sharp drop to 16% vs. 18%。
In this round of M2 high growth, large types of assets have not become a monetary "reservoir" for the following important reasons: First, residents' expectations for housing prices are weak;The second is the decline in the purchasing power of residents' balance sheetsThird, affected by black swan events such as geopolitical conflicts and aggressive interest rate hikes by the Federal Reserve, ** fluctuates greatly, and the risk appetite of individuals and institutions declinesFourth, the bond market is superimposed on the reform of the net worth of wealth management products, and investors are more sensitive to market fluctuations and redeem a large number of wealth management products.
5 V: Solve the mystery of the decline in the velocity of money.
According to the above discussion of MV=PQ, M is high, P and Q are low, and finally point to a slowdown in the velocity of money V. Essentially, v refers to the number of times a unit of currency is exchanged for a good or service per unit of time. According to economic theory, the velocity of money is related to consumption habits, industrial structure, etc., and the general assumption is that v remains constant. However, in practice, it has been confirmed by empirical literature that v is affected by factors such as savings, assets**, monetization, and financial innovation.
The overall velocity of money has decreased significantly, and money has been precipitated into savings, but has not been converted into consumption and investment. We use the ratio of GDP to m2 to measure the velocity of money in the whole sector v, and find that v has increased from 0. in 201850 fell back about 10 percentage points to 045。Since 2022, the currency has gradually precipitated in the fixed deposit accounts of residents and enterprises, withdrawn from the circulation field, and the activity of currency exchange in the society has decreased significantly.
Measuring the velocity of money between different sectors, it is found that the velocity of money between households and firms, and the velocity of money within the corporate sector, also decreased. Because consumption and housing purchase are the bridge of currency exchange between residents and enterprises, we select monthly residential sales and total social retail sales according to the literature to measure the currency circulation between residents and enterprisesFixed asset investment is an important channel for currency exchange between enterprises, and the monthly investment amount is selected to measure the currency circulation between enterprises. Then, based on the "M pq" method, divide by the measured M2 of the residential side and the enterprise side respectively to obtain two Vs. The results show that the v between households and enterprises and the v within the enterprise sector both decrease, indicating that the savings deposits of the household sector have not been smoothly converted into deposits in the corporate sector, and the monetary cycle dominated by fixed asset investment among enterprises has also slowed down.
Why is the velocity of money declining?We have summarized 4 deep-seated reasons.
First, the scarring effect of residents has not subsided, income expectations are unstable, balance sheet shocks, and precautionary savings have emerged. According to the decomposition of M2 flow, the proportion of residents' fixed deposits increased significantly, and there was no cross-period conversion into a high increase in corporate deposits, pointing to the emergence of residents' precautionary savings. Precautionary savings will reduce the consumption behavior of the household sector and reduce the activity of currency exchange between households and enterprises.
Second, the real estate market is expected to be unstable, residents' willingness to buy houses and increase leverage is low, it is difficult for residents' deposits to be converted into corporate deposits, and currency exchange is blocked. Since 2022, the velocity of money circulation has been closely related to housing**, and housing loans are also the most important component of residents' liabilities. Over the past decade, the resident leverage ratio has increased from 33 in 2013Q45% rose to 61 in 2022Q49%, while the proportion of people who chose "more savings" also increased from 474% rose to 618%。This reflects the high debt pressure of residents, the low risk appetite, the weak willingness to buy houses and leverage, the difficulty in converting residents' deposits into corporate deposits, and the obstruction of currency exchange between the two major departments, which pulls down V.
Third, residents dare not consume, which means that the currency exchange between residents and enterprises is blocked, and M1 is sluggish. Since 2022, despite the positive allocation of corporate credit, the derived M2 has not been deposited in the current account, reflecting the weak willingness of enterprises to invest and expand in the short term. As of October 2023, the cumulative growth rate of private investment is only -0 year-on-year5%, while state-owned enterprises have fallen to 6 year-on-year2%。Due to the weak earnings expectations of enterprises, they remain on the sidelines for expansionary operations after obtaining credit, and then precipitate funds in fixed deposits.
Fourth, due to the lack of activity of market entities and the drag of land finance, local tax revenue and land sales revenue have slowed down, although relying on special bonds to maintain infrastructure growth, but the capital turnover is slow. In the first three quarters, infrastructure investment maintained high growth under the high base of last year, and the financial sector continued to exert force, with an average year-on-year growth rate of 9 in the first ten months57%。
However, the business cycle of infrastructure construction is long, the amount of capital occupied is large, medium and long-term loans are the mainstay, and the currency exchange is slow, and v is objectively low. At the same time, capital-intensive industries such as infrastructure occupy a large amount of credit resources, which has a certain crowding out effect on other industries.
6 Breaking the game: Fight for the economy with all your might, boost confidence and expectations.
A large-scale economic stimulus plan has been introduced to boost confidence and support economic recovery.
Constrained by weak expectations, the willingness of households and the corporate sector to increase leverage is not strong, and the incremental money supply is precipitated in savings, and the velocity of money circulation has declined, which has not been translated into effective investment and consumption. At present, the aggregate is characterized by loose money and tight monetary structure, and the market has insufficient response to easy money and the feelings of market players are differentiated. How to boost residents' willingness to consume and buy houses, enterprises' willingness to invest and expand, and activate currency circulation have become the key to economic recovery.
First, the monetary policy will continue to be accommodative, protect market liquidity, and remain stable while being more precise and powerful. Monetary and credit policies need to focus more on efficiency and quality. It is necessary to pay attention to giving full play to the guidance and direction of structural monetary policy tools, and make efforts to revitalize existing resources and dredge the transmission mechanism, so as to solve structural problems.
The second is to take multiple measures to stabilize the real estate and help the soft landing of the real estate. The first is to set up a housing bank to acquire the developer's land and commercial housing inventory for rental housing and affordable housingThe second is to take the opportunity to completely cancel the purchase restrictions;The third is to significantly reduce the interest rate of existing housing loans. In the long run, it is necessary to change the development model, and build a new real estate development model through "urban agglomeration strategy, people-land linkage, financial stability, and simultaneous rental and purchase", so as to promote the stable landing of real estate and promote the healthy development of the real estate market.
The third is to accelerate the boost of residents' consumer confidence. Consumption is an important engine of economic growth, and only when household consumption drives enterprise production can a virtuous cycle of economic recovery be formed. First, it is necessary to continue to stabilize employment, increase income, improve residents' income expectations, and increase residents' consumption tendency. The second is to restore residents' spending capacity by issuing consumption vouchers and other means, in the form of digital yuan, covering all industries, and distributing them on a per capita basis, reflecting inclusiveness and fairness.
Fourth, boost the confidence of private enterprises, improve profit expectations, and promote enterprise production investment. The first is to support the financing of private enterprises, reduce the financing cost of the real economy through RRR and interest rate cuts, and continue to play the role of aggregate and structural monetary policy tools to support the development of the real economy and small, medium and micro enterprisesThe second is to optimize the business environment, protect property rights, and encourage healthy competition in the marketThe third is to correct the name of entrepreneurs, promote and cultivate the entrepreneurial spirit, and create a healthy pro-Qing political and business relationship with enterprises. Recently, eight departments jointly issued the "Notice on Strengthening Financial Support Measures to Help the Development and Growth of the Private Economy", proposing 25 specific measures to support the private economy, injecting another shot of strength into the private economy.
Fifth, it is an important starting point to develop new infrastructure and new energy, taking into account the short-term expansion of effective demand and the long-term expansion of effective supply, which has the comprehensive significance of stabilizing growth, stabilizing employment, adjusting structure, promoting innovation, and benefiting people's livelihood. **Issuance of an additional 1 trillion yuan of national bonds to support post-disaster recovery and reconstruction and improve disaster prevention, mitigation and relief capabilities. The additional funds are mainly used for post-disaster recovery and reconstruction and the construction of disaster prevention and prevention facilities, which directly benefits infrastructure.
Sixth, promote fiscal transformation, from land finance to equity finance. Promote the package of debt in an orderly manner, establish a long-term mechanism for preventing and resolving local debt risks, establish a first-class debt management mechanism that is compatible with high-quality development, and optimize the structure of high-quality and local debt. In the future, the sustainability of land finance will be decreasing, and it is necessary to actively strengthen the market-oriented participation of state-owned equity, build local characteristic industrial clusters, and cultivate new growth engines through new infrastructure and new energy. Support and encourage more localities to actively promote the construction of characteristic industries, broaden fiscal revenue channels and equity value, and accelerate the transformation of local finance.
Editor-in-charge: Tao Jiyan |Review: Li Zhen |Supervisor: Wan Junwei.
*: Zeping Macro )