{"id":4732,"date":"2024-07-18T08:26:18","date_gmt":"2024-07-18T08:26:18","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=4732"},"modified":"2025-03-27T15:50:46","modified_gmt":"2025-03-27T15:50:46","slug":"should-record-chinese-monetary-weakness-be-discounted","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=4732","title":{"rendered":"Should record Chinese monetary weakness be discounted?"},"content":{"rendered":"

Chinese money trends are puzzling but ominous, suggesting – at a minimum – that the economy will remain weak through H2.<\/p>\n

Q2 real GDP growth came in below expectations but there was better news on the nominal side: two-quarter nominal GDP expansion rose for a second quarter as the GDP deflator stabilised – see chart 1.<\/p>\n

Chart 1<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

This improvement tallies with a recovery in six-month rates of change of narrow money and broad credit around end-2023. Money and credit momentum, however, has since slumped, reaching a new record low in June – chart 2.<\/p>\n

Chart 2<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

A post<\/a> a month ago noted that money – and to a lesser extent credit – numbers have been distorted by a regulatory clampdown on the practice of banks paying supplementary interest. This has resulted in non-financial enterprises (NFEs) moving money out of demand deposits into time deposits and non-monetary instruments such as wealth management products (WMPs), as well as repaying some debt.<\/p>\n

The post suggested discounting narrow money weakness and focusing on an expanded broad money aggregate including WMPs. The six-month rate of change of this measure had slowed significantly but was still within – just – the historical range of six-month broad money growth.<\/p>\n

That is no longer the case. CICC numbers on WMPs show an outflow in June. Six-month growth of the expanded measure has converged down towards that of conventional broad money – chart 3.<\/p>\n

Chart 3<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

F\/x intervention to support the yuan has contributed to monetary weakness but the effect has been minor. Net f\/x settlement by banks – which captures spot intervention using the balance sheets of state banks and other institutions – amounted to CNY590 bn ($83 bn) or 0.2% of broad money in the six months to May (a June number is due this week).<\/p>\n

Household money growth, it should be emphasised, is stable and respectable: broad money weakness is entirely attributable to a loss of NFE deposits – chart 4. The puzzle is the destination of the “missing” NFE money. Only a small portion is likely to have been used to repay debt: banks’ short-term corporate lending fell in April \/ May but rebounded to a new high in June.<\/p>\n

Chart 4<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

The focus of monetary weakness on NFEs suggests downside risk to investment and hiring, with negative feedback from the latter to consumer spending.<\/p>\n

—–
\nCOMMENT:
\nAUTHOR: David Cotton
\nEMAIL:
\nIP: 81.150.175.79
\nURL:
\nDATE: 07\/18\/2024 08:26:18 AM<\/p>\n

I wonder if we'll see a more dramatic policy response. It does seem policy makers are "asleep at the wheel" even as some big warning signs are flashing.<\/p>\n","protected":false},"excerpt":{"rendered":"

Chinese money trends are puzzling but ominous, suggesting – at a minimum – that the economy will remain weak through H2. Q2 real GDP growth came in below expectations but there was better news on the nominal side: two-quarter nominal GDP expansion rose for a second quarter as the GDP deflator stabilised – see chart […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-4732","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4732","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4732"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4732\/revisions"}],"predecessor-version":[{"id":7041,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4732\/revisions\/7041"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}