Sheng Songcheng, He Yulin.
**The bonds are in line with the statistical definition and design intent of the scale of social financing
In the 13 years since its inception, the social financing scale index has been well known and highly concerned by all levels, market participants and academics. By definition, the increment in the scale of social financing refers to the amount of funds that the real economy receives from the financial system over a certain period of time (monthly, quarterly, or annually). The financial system here is the concept of overall finance: from the perspective of institutions, including banks, insurance and other financial institutions; From a market perspective, it includes the credit market, the bond market, the ** market, the insurance market and the intermediate business market. The statistical caliber of the scale of social financing includes two dimensions: on the one hand, the assets of financial institutions, which are mainly reflected in the financial support of new loans to the real economy; On the other hand, through the issuer of the financial market, the real economy obtains funds in the form of direct financing, mainly in the form of **, bonds, etc.
The scale of social financing is theoretically supported by the credit view of the monetary policy transmission mechanism. The introduction of this statistical indicator is in line with the economic and financial environment in which China's financial market and products continue to innovate, direct financing develops rapidly, the role of non-bank financial institutions increases, and the social financing structure undergoes significant changes.
The inclusion of ** bonds in the statistics of social financing scale is in line with the statistical definition and scope of social financing scale, and is also consistent with the original intention of the design of social financing scale. On the one hand, as a sector of the real economy, it can directly carry out economic activities such as investment and purchase after obtaining funds through the financial market to promote the development of the real economy. As such, bonds represent the money that the real economy receives from the financial system. On the other hand, at the beginning of the design of the social financing scale index, the scale of ** bonds was small, so it was not included in the statistics. Since September 2018, the People's Bank of China has included the "local ** special bonds" in the statistics of social financing, because since August 2018, the issuance of local ** special bonds has accelerated, which has an obvious succession effect on bank loans and corporate bonds, and its scale and impact on the financing of the real economy cannot be ignored. In addition, in order to better reflect the leverage ratio of macro and various sectors, as well as facilitate the coordination and cooperation of fiscal policy and monetary policy, in December 2019, the People's Bank of China included "national bonds" and "local ** general bonds" into the statistics of social financing scale, and merged them with the original "local ** special bonds" into the "** bonds" index.
In recent years, China's role in promoting high-quality economic development, counter-cyclical adjustment, and preventing and resolving financial risks has become more and more enhanced, and the scale of bonds has risen. It can be seen that five years ago, the first bonds began to be included in the statistics of social financing, which is a move to adapt to the times and keep pace with the times.
The scale of social financing included in ** bonds reflects the transmission of monetary policy more comprehensively
Since December 2010, the first economic work conference proposed to "maintain a reasonable scale of social financing", the scale of social financing indicators have been continuously written into the first economic work conference documents and the "work report". The ** economic work conference held in December 2023 proposed that "the scale of social financing and the amount of money should match the expected target of economic growth and ** level". It can be seen that the scale of social financing and the amount of money constitute the "two intermediary goals" of China's monetary policy regulation.
It is estimated that after the inclusion of ** bonds, the annual year-on-year growth rate of the stock of social financing scale from 2015 to 2023 will increase by an average of 15 percentage points, while the year-on-year growth rate decreased by an average of 02 percentage points, which reflects the increasing proportion of ** bonds in the scale of social financing. As of the end of December 2023, ** bonds accounted for 185%, compared to less than 10% before 2015.
After the inclusion of **bonds, the relationship between the scale of social financing and the amount of broad money (m2) has changed. **When issuing bonds, funds will be raised by absorbing bank deposits from other sectors (such as individuals, enterprises and non-depository financial institutions) or by pushing commercial banks to adjust their asset structure (such as using current assets to purchase bonds, which are mainly excess reserves), so as to form fiscal deposits, which are not included in M2. In the following period, fiscal deposits will be reconstituted into deposits in other sectors through spending and investment, so the scale of social financing will change to a certain extent ahead of M2. It is estimated that from 2002 to 2023, after the inclusion of ** bonds, the correlation coefficient between the month-on-month increase in the scale of social financing and the month-on-month increase in M2 decreased by 33%, but the correlation coefficient with the 1-month, 2-month, and 3-month m2 increments increased, respectively9% and 54%。This confirms the conclusion that the scale of social financing has changed before M2 mentioned above.
After the inclusion of ** bonds, the scale of social financing is more closely related to economic growth. It is estimated that from 2002 to 2023, after the inclusion of ** bonds, the correlation coefficient between the year-on-year growth rate of the quarterly stock of social financing scale and the year-on-year growth rate of nominal gross domestic product (GDP) in the current quarter increased by 2 percentage points, and the correlation coefficient with the year-on-year growth rate of nominal GDP in a lagging quarter increased by 06 percentage points, but the correlation coefficient with the year-on-year growth rate of nominal GDP in the two quarters lagged fell by 11 percentage point. This means that the scale of social financing included in the ** bond can reflect the change in economic growth in a more timely manner.
Monetary policy can effectively affect the scale of social financing, and the scale of social financing also has a greater impact on the economy, prices and investment, which is the transmission process from the intermediary goal of monetary policy to the ultimate goal. It can be seen that with the increase in the scale of ** bonds, only by including ** bonds, the scale of social financing can more comprehensively and timely reflect the transmission of monetary policy, especially the role of monetary policy in promoting economic growth.
The scale of social financing included in the ** bond reflects the coordination of monetary policy and fiscal policy
As the two most important macroeconomic policies, monetary policy and fiscal policy need to be coordinated, and the most important and core content of this cooperation is how the monetary system supports the issuance and trading of ** bonds. **The structure of holders of bonds, especially government bonds, can provide a general indication of how monetary and fiscal policies are aligned.
As of the end of December 2023, China's treasury bonds are mainly held by domestic commercial banks (accounting for 652%), and the proportion of bank holdings is only 52%。The main holders of local ** bonds are also domestic commercial banks (accounting for 81.5% of the stock9%）。As of the end of October 2023, the stock of U.S. Treasury bonds was 146% is held by ** banks (before the current round of QE tightening in May 2022, the proportion was 18.).9%), while the proportion held by domestic banks is only 51%。It can be seen that China mainly relies on domestic commercial banks to provide financing for treasury bonds and local ** bonds, while the proportion of US ** banks holding treasury bonds is relatively high, and the related monetary policy operation tool is quantitative easing. This reflects the difference in the way fiscal and monetary policies are coordinated between China and the United States.
Focusing on China, the People's Bank of China comprehensively uses open market operations (OMO), medium-term lending facilities (MLF), re-lending, re-discounting and other tools to invest base money, and at the same time adjusts the currency multiplier through reserve tools to maintain reasonable and sufficient liquidity, providing strong support for the scale of social financing and the reasonable growth of money and credit. In this process, ** bonds are an important factor affecting the operation of monetary policy tools, and the use of monetary policy tools will also react to the issuance and trading of ** bonds. Therefore, from the perspective of the transmission of monetary policy operation to intermediary targets, the scale of social financing included in ** bonds reflects the coordination of monetary policy and fiscal policy. Specifically, it is manifested in the following three aspects.
First, open market operations will iron out short-term liquidity disturbances caused by bond issuance payments. Since 1996, when the People's Bank of China (PBoC) began to experiment with open market operations, the participants in the treasury bond trading market have expanded from residents and industrial and commercial enterprises to financial institutions represented by commercial banks. At present, China's first-class bonds are mainly issued in the interbank market, which is also the place for the central bank's open market operations. When the payment of ** bond issuance has a short-term periodic disturbance to interbank liquidity, the central bank needs to have sufficient tools to smooth it out based on the monetary policy objective and maintain reasonable and sufficient short-term liquidity. At this time, the monetary policy tool provides short-term liquidity support for the issuance of **bonds, ensuring the smooth operation of **bonds**. This is the current practice of open market operations of central banks in major economies around the world.
Second, the medium-term lending facility affects bond yields through the dual mechanism of base money supply and policy rate guidance. The medium-term lending facility is a monetary policy tool for the first bank to provide medium-term base money to the banking system, which is operated once a month, mainly for 1 year, and is now the most important base currency delivery channel in China. At the end of December 2023, the balance of the medium-term lending facility was RMB7,075 billion. With the medium-term lending facility, liquidity is transmitted from the banking system to the entire financial system, thereby providing funds for the financial system to invest and trade financial assets. At the same time, the medium-term lending facility rate plays the role of the medium-term policy rate, which has an impact on the balance sheets and market expectations of financial institutions by adjusting the cost of medium-term financing from financial institutions, thereby affecting the yield to maturity of bonds, a core financial asset. Experience has shown that when the interest rate for the medium-term lending facility is lowered, the yield to maturity of government bonds on that day will also fall. The yield to maturity is the basis for pricing the coupon rate of new bonds, which is the financing cost of the ** sector.
Third, the statutory reserve ratio can adjust the long-term liquidity level of commercial banks and affect their willingness to hold and purchase ** bonds. As the most important purchaser and holder of ** bonds, the medium and long-term liquidity level of commercial banks is one of the main factors affecting their long-term bond holding decisions. The reduction of the statutory reserve ratio will provide more abundant medium and long-term financial support for the asset allocation of commercial banks, of which the allocated assets naturally include ** bonds. Therefore, unlike the world's major economies, the reduction of the deposit reserve ratio is a unique way of coordination between China's monetary policy and fiscal policy, which stems from the fact that commercial banks are the main holders of China's top bonds.
It can be seen that whether it is for operational purposes or the transmission of operational mechanisms, monetary policy tools interact with the issuance and trading of ** bonds by regulating short-term, medium-term and long-term liquidity, which will ultimately be reflected in the changes in the scale of social financing. If the ** bonds are not included in the scale of social financing, then the impact of monetary policy and the coordination of fiscal policy will be difficult to be fully reflected.
The revision of the statistical caliber of indicators is a routine operation in the international community
With the development of social economy and the innovation of financial instruments, the statistical caliber of economic indicators is not static, and the revision of statistical caliber is also a routine operation in the world. For example, the Federal Reserve has been measuring and publishing the amount of money since the 60s of the 20th century. With the development of financial practice, the Federal Reserve has revised the statistical caliber of monetary ** 16 times. Japan began to conduct monetary statistics long before 1949. In order to adapt to the changes in the economic and financial structure, Japan has also revised its monetary statistics method many times.
Since 1994, when China launched the monetary index system, the monetary volume has undergone three major adjustments. Every adjustment stems from new situations and changes in the economy and financial markets. The adjusted amount of money can more accurately reflect the scale of liquidity in the economic system, and the adjustment itself also improves the monetary monitoring work of the central bank and improves the accuracy of macroeconomic control. Specifically, the three major adjustments in China's monetary statistics are: in 2001, the company's customer margin was included in M2, in 2002, the RMB deposits of foreign banks and joint venture financial institutions in China were included in different levels of currency, and in 2011, the deposits of the housing provident fund center and non-depository financial institutions in depository financial institutions were included in M2.
The definition of the scale of social financing seems simple, but the definition of a short sentence actually summarizes the essence of the scale of social financing, and leaves room for the improvement and revision of this indicator in the future. With the development and change of economy and finance, it is normal for the scale of social financing to be revised, and its revision should take into account two aspects: on the one hand, it is necessary to consider the principle of correlation enhancement, that is, to improve the sensitivity of the scale of social financing to reflect economic changes, and to improve the degree of correlation with economic output, prices and other variables. As measured above, after the inclusion of ** bonds, the scale of social financing is more closely related to the nominal economic growth. On the other hand, the principle of measurability and statistical cost-benefit comparison should also be considered, and data with smaller amounts and higher statistical costs can be temporarily excluded, which does not prevent the application of indicators.
All in all, it is timely and necessary to include ** debt in the social financing scale index, which can not only fully reflect the transmission of monetary policy, but also reflect the coordination of monetary and fiscal policies. Looking ahead, the proactive fiscal policy and prudent monetary policy are important measures for China to consolidate and enhance the positive trend of economic recovery. With the continuous development of the economy and the need to prevent and resolve risks, China's debt scale may continue to rise in the next few years. A prudent monetary policy should be combined with a proactive fiscal policy to ensure the smooth issuance of bonds and provide a relatively stable financing interest rate for the first country, so as to meet the capital needs of investment and purchase, boost aggregate demand, and enhance financial support for the real economy.
The author, Sheng Song, is a professor at China Europe International Business School, and He Yulin is a postdoctoral fellow at the Shanghai ** Stock Exchange).
Editor-in-charge: Liu Jinping Editor-in-chief: **