alert! The marginal effect of monetary policy has declined

At the end of July, the M2 year-on-year growth rate decreased by 1.6 percentage points from the previous month to 10.2%, which was significantly lower than the 13.4% at the end of March. The scale of new credit and social financing in July also showed a year-on-year increase.
When the relevant person in charge of the central bank answered questions on financial data, he said that the growth of monetary credit has not been slow this year, and there are some special factors in this year's data. After the exclusion, the overall situation is still basically normal. From the perspective of M2, the stock market fluctuated greatly in the second and third quarters of last year, which caused the base at that time to rise sharply. As a result, the M2 year-on-year data in recent months was somewhat "distorted" and did not represent real growth.
Chen Hao, a senior researcher at the Bank of Communications Financial Research Center, told reporters that the base effect of the rapid rise of M2 in July last year had a greater impact on the data in July this year. Therefore, the further decline in M2 growth in July was also expected.
The relevant person in charge of the central bank said that under the background of the new normal economic development and the implementation of the deleveraging task, the central level of monetary credit growth may be adjusted than in the past, and it needs to adapt. Due to various factors, certain fluctuations in monthly data of money and credit are more common, and excessive interpretation of short-term data for a certain month should be avoided.

Less credit, increase seasonal factors, demand structure, differentiation
In terms of credit data, in July, RMB loans increased by 463.6 billion yuan, a year-on-year increase of 1.01 trillion yuan, and the balance increased by 12.9%. Almost all of the new loans were household loans, especially personal housing loans, while non-financial corporate loans were reduced by 2.6 billion yuan.
In this regard, the relevant person in charge of the central bank explained that from the household sector loans, this year's growth is indeed more prominent, of course, mainly related to the rise of many urban real estate market, the average monthly personal long-term housing loan in the first 7 months is close to 400 billion yuan, the season Sexual fluctuations are not large. From the perspective of corporate sector loans, the deepening of the economic structure and the downward pressure on the economy, especially in the context of de-capacity and deleveraging, the overall credit demand of enterprises is not as strong as that of the household sector.
Analysts said that the majority of the loans flowed to the mortgage, the People's Bank of China did not deny; for the low demand for corporate financing, the People's Bank of China did not evade. Chen Hao told reporters that on the one hand, the large-scale local government bond issuance in June, some of which delayed the negative impact on corporate credit in July; on the other hand, this may once again confirm the current business vigor and investment willingness. not tall.
It can be seen that the differentiation of the credit demand structure between the residents and enterprises has intensified. In addition, it is worth noting that the absolute volume of bill financing in the past two months has shrunk significantly from the previous period of 100 billion yuan. Wang Jian, a macro analyst at Guotai Junan, said that the discounted bills and non-bank financial loans were relatively high in July last year. If these two base factors were removed, there would be no abnormalities in the new loan data in July this year.
In terms of non-financial corporate loans, short-term loans decreased by RMB 2011 billion, and medium and long-term loans increased by RMB 151.4 billion. Wang Jian said that both data have seasonal factors. For public and short-term loans, from 2014 to July 2015, it also decreased year-on-year. For example, in July 2015, it also fell by more than 230 billion yuan. The increase in the scale of public, medium and long-term loans is slightly less than that of the previous months, mainly related to the government's steady growth policy at the beginning of the year.

Off-balance sheet business continued to regulate direct financing and stable development
The data shows that the social financing scale increased by 487.9 billion yuan in July, a year-on-year decrease of 263.2 billion yuan. The undiscounted bank acceptance bills fell sharply, and the monthly negative growth once again reached more than 500 billion yuan. Chen Wei said that although this has greatly dragged down the growth of social financing in a single month in July, the off-balance-sheet business tends to be standardized, which helps banks and financial systems to reduce overall systemic risks.
"It is worth noting that because the bills usually have a real trade background, the decline in the acceptance bills also reflects to some extent that the demand for the financial instruments in the real economy has declined," Chen said.
In addition, corporate debt and non-financial corporate equity financing continued to grow steadily in July after growing by RMB 2009 billion and RMB 111.8 billion respectively in July, with an increase of RMB 218.8 billion and RMB 113.5 billion respectively. Chen Yu stressed that the further development of direct financing is the direction for optimizing the social financing structure in the future.
From January to July, corporate bonds and equity financing totaled 2.65 trillion yuan, a year-on-year increase of 1 trillion yuan. The relevant person in charge of the central bank said that multi-channel financing has formed a certain substitution for loans, which is also consistent with the direction of increasing the proportion of direct financing.
“In the current low market interest rate, some high-quality enterprises are already changing their thinking and seeking financial support from the direct financing market. In the current environment where the available assets are relatively scarce, the bonds may still become a lot in the future. One of the main choices for investors." Chen Yu said.
In July, M1 increased by 25.4% year-on-year, the highest since June 2010, and the “scissors difference” of M1 and M2 growth rate further expanded to 15.2 percentage points. In this regard, the analysis of the relevant person in charge of the central bank said that first, the medium and long-term interest rates are lowered, and the opportunity cost of holding up demand deposits by enterprises is declining. Second, the real estate and other asset markets are active, and the demand for trading currencies has risen. In particular, real estate and construction companies have increased their monetary funds. Third, some funds will be temporarily deposited during the local government debt swap process. The above-mentioned person in charge also stressed that the "scissors difference" of M1 and M2 growth rate cannot be used as an indicator to measure whether to enter the "liquidity trap". But it is undeniable that the marginal effect of monetary policy has declined. Analysts stressed that we should not rely too much on monetary policy to stimulate the economy. Considering that the government has a large amount of assets and the government debt ratio is not high, these mean that fiscal policy still has sufficient operational space.

Related reading: Central bank officials: monetary policy can not be independent supply side reform is the only way out
[Pang Tao suggested that the government should not be able to “freeze” and should respect the market and give play to the role of market clearing; the G20 summit hosted by China as the presiding country, taking structural adjustment as an important content, proposed nine priority areas and 48 guidance. Principles, 12 detailed indicators. ]
In September this year, China will assume the chairmanship of the G20 summit, and structural reforms are the core issues facing the world. Quantitative easing (QE) and low interest rates can save countries from the deepening of the crisis, but they can no longer really stimulate economic growth and increase productivity. The consequences of long-term stagflation are terrible.
On August 16th, “2016 Century China Forum: Supply-side Structural Reform and Long-term Growth of China's Economy”, Sheng Songcheng, Director of the Survey and Statistics Department of the People's Bank of China, Senior Research Fellow of the China Financial Forty Forum, and the International Collection of the State Administration of Foreign Exchange Industry experts such as Zhisi, the chief secretary of the branch, gathered together to emphasize the urgency of China's supply-side structural reforms, and this is the biggest point of view of the G20 this year.
"China's economy has entered a new normal, structural adjustment is a hurdle that cannot be bypassed. It is a long-lasting battle that has been exerted for a long time. In such a situation, it is necessary to maintain strategic strength, build confidence, and firmly overcome difficulties. Determined to avoid using the expansion of 'big water flooding' to give the economy a strong boost, resulting in a short-term excitement after the economy is getting worse and worse." Guan Tao said.

Sheng Songcheng: Monetary policy cannot be alone
Sheng Songcheng said that the current round of economic downturn is essentially a superposition of two major problems: insufficient effective demand and imbalanced supply structure. More emphasis should be placed on the coordination of fiscal and monetary policies.
In fact, similar to countries around the world, the marginal effect of China's monetary policy is declining. Since last year, China has released a lot of liquidity through measures such as RRR cuts and MLF (intermediate loan lending facilities), but the willingness to invest in enterprises has continued to be low. In July, the “scissors difference” of M1 and M2 continued to expand to 15.4%, hitting a record high. In July, RMB loans increased by 463.6 billion yuan, of which medium and long-term loans (mortgage) increased by 477.3 billion yuan. Non-financial enterprises and government group loans A reduction of 2.6 billion yuan shows that companies are holding on to the currency and watching.
The cause of this status quo is not lacking in special factors. Sheng Songcheng said, for example, last year's bailout factor raised the contrast base. In July last year, due to the large fluctuations in the stock market, a large number of funds for maintaining stability and saving the city were injected. The deposits of securities financial institutions in commercial banks increased by 964.5 billion yuan, raising the base of comparison of money and credit. After deducting the impact of this factor, preliminary estimates show that M2 increased by 11% year-on-year in July this year, down 0.8 percentage points from the previous month.
In addition, the total off-balance sheet financing of the real economy in July decreased by 313.7 billion yuan. Among them, the undiscounted bank acceptance bills decreased by 512.2 billion yuan, the largest monthly decline since 2002, which is related to the tightening of supervision and the shrinking of business transactions between enterprises.
Although the special factors exist objectively, the substantial reason for the continuous expansion of the “scissors difference” is still the low willingness of enterprises to invest.
Sheng Songcheng said that with the increase in the money supply, a large amount of money flows to enterprises, but the increase in the company's current funds is not due to business expansion, but the company is holding money and watching and investing cautiously. The growth rate of real economy manufacturing investment and private fixed asset investment continued to be sluggish. From January to July 2016, manufacturing investment increased by 3.0% year-on-year, down 0.3 percentage points from the previous month, the lowest since 2004. Private fixed-asset investment in January-July increased by only 2.1% year-on-year, lower than the same period of the previous year. 9.2 percentage points, down 0.7 percentage points from the previous month, the lowest historical value since the first release in the first quarter of 2012.
Recently, many analysts pointed out that the rapid growth of entrusted loans of large enterprises (mainly state-owned miners and heavy-duty manufacturers) is a worrying trend that may aggravate China's bad debts.
“These non-financial (state-owned enterprises) do not have the necessary expertise to operate like a bank and evaluate the creditworthiness of borrowers; as the economy slows further, these loans are likely to become non-performing loans.” Fitch Research An analyst at the agency BMI Research said in a report.
When Chinese companies face a similar "liquidity trap," Sheng Songcheng believes that China's active fiscal policy has advantages.
He said that compared with Western countries, the Chinese government has greater decision-making power in terms of fiscal policy and monetary policy, and can choose a better combination. In particular, the leverage ratio of the Chinese government sector is generally lower than that of developed countries. As of the end of 2014, the national government had a debt balance of 249.655 billion yuan, which was 39.2% of the GDP of the year.
In addition, Sheng Songcheng believes that tax cuts will be more conducive to corporate investment than interest rate cuts. "China's corporate tax burden is heavier, and tax reduction can rapidly increase corporate profits and effectively promote enterprise production enthusiasm. In 2013, the total tax rate of Chinese enterprises was 67.8%."
It is worth noting that China's fiscal sustainability has an absolute advantage over Western countries, which provides valuable space for fiscal stimulus and structural reform. "It is estimated that China's fiscal deficit rate can be raised to 4% or even higher (the actual fiscal deficit in 2014 accounted for 2.1% of GDP, 3.5% in 2015, and over 3% for the first time), which can make up for tax reduction. The fiscal reduction brought about by it will better support supply-side reforms and will not bring higher debt repayment risks to our government,” Sheng Songcheng said.
This is mainly determined by two major reasons. First of all, the Chinese government's debt structure is more reasonable. First, most of the government debt is domestic debt, and the proportion of foreign debt is very low (in 2014, foreign debt only accounted for 1%, the United States accounted for 43%); second, China's short-term debt accounted for a relatively low proportion (the short-term debt of China's central government debt at the end of 2014) The proportion was 10.1%, while the proportion of US short-term government bonds and institutional bonds reached 31.3%.
Second, China’s economy and government revenues have grown rapidly. First, higher economic growth has led to a faster increase in fiscal revenue, which has improved the sustainability of China's government debt. Second, China's state-owned enterprises have strong assets and strong profitability. Third, China's local government has more land sales and local governments. The financing platform has certain profitability.

Guan Tao: Long pain is worse than short pain
In fact, looking at the world, it is not difficult to find that not only China's structural reforms cannot be delayed, but the monetary policies of the United States, Europe, and Japan have reached the limit. It seems that since the big crisis in 2008, the world has recovered from the crisis, but it is difficult to continue to grow, and productivity has continued to fall. For example, long-term risks such as the US presidential election, Brexit and potential economic growth slow down. Constantly brewing.
Guan Tao said that the response measures of the Asian financial crisis in the 1990s and the response to the 2008 crisis were completely different, but the consequences were also far-reaching and worthy of consideration.
When the Asian financial crisis broke out, countries in Argentina, Indonesia and South Korea applied for tens of billions of dollars in emergency aid loans to the International Monetary Fund (IMF) because of the lack of sufficient foreign exchange reserves in Southeast Asia.
However, while the IMF is providing assistance to crisis countries (except Korea, Thailand, the Philippines, Indonesia, and Malaysia), its stringent conditions are still accused by Southeast Asian countries: fiscal austerity, monetary tightening, financial rectification, and opening up.
Guan Tao pointed out to the "First Financial Daily" reporter that although many scholars believe that the IMF was doing wrong at the time, and the IMF itself learned the lessons, it was because of the "short pain" at that time, "a crisis country after one or two years." After the negative economic growth, it turned positive. During the period of 2001-2005, the dollar-denominated GDP of the crisis exceeded the pre-crisis level."
However, looking at the crisis and response in 2008, developed countries generally implement expansionary fiscal and monetary policies, including private sector de-leverage, government departments and leverage; central banks such as Europe, the United States and Japan implement unconventional monetary policy: from low interest rates, Zero interest rate and quantitative easing (QE) went to negative interest rates. For example, Japan’s Abenomics’ “three arrows”: QQE (quantitative and qualitative easing) and positive fiscal policy have made a successful move, but the third structural adjustment arrow has not arrived yet, causing the Japanese economy to appear to be in a quagmire. .
After eight years of crisis, what about the world economy today? Guan Tao said that the current global financial risks are rising, shifting: from developed countries to emerging markets; from the banking system to the shadow banking; from the repayment risk to the liquidity risk.
In addition, the global negative-yielding government bonds have reached 10 trillion US dollars; the European banking system is faltering due to long-term low interest rates, strong supervision and economic fluctuations; the Fed is still struggling to increase interest rates due to the spillover-recovery effect; IMF The 2016 global economic growth forecast has been lowered for three consecutive times.
Guan Tao said that after the Asian crisis countries paid a short price, because the fiscal revenue and expenditure, the external balance is healthier, the exchange rate is more flexible, and the reserves are more abundant, they can better cope with the challenges of the current international financial crisis; Fiscal and monetary stimulus, so far failed to get out of the crisis, has instead formed a further reliance on stimulus policies.
Right now, if we want to reverse the situation, Guan Tao suggests that the government can't "freeze" and should respect the market and give play to the role of market clearing; China's G20 summit, chaired by China, has made structural adjustment an important part, and proposed nine Priority areas, 48 ​​guiding principles, and 12 refinement indicators.
In addition, the supply side is the main contradiction. "The structural reform of the supply side must be strengthened and must be the main direction. The demand side plays a role in solving the main contradictions to create an environment. Investment expansion can only be moderate and not excessive." Guan Tao said.

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