However, the economy rebounded after a 6.8% decline in the first quarter, and is likely to grow at a rate of about 2% by the end of the year. What is the main reason for China’s economic growth? In short, borrowing money.
Monetary instruments become the main support
Due to epidemic shutdowns and floods that affected the resumption of construction, real estate has gone through a profitable period, land sales have decreased, and local finances have been strained. Local debt is higher than last year, making it difficult to hand out money to the public as in developed countries.
Household debt has risen sharply: in October, the International Monetary Fund (IMF) reported that in the first half of this year, China’s household loan growth was about 13.5%, slightly higher than the growth of corporate loans and higher than the average growth in other emerging markets. In contrast, the U.S. corporate loans increased by about 17% in the same period, and household loans increased by only about 1%.
Recently, China’s central bank announced three quarterly “monetary policy report” echoed the IMF’s statement. As of September, the balance of household loans was RMB 61,443.1 billion, up 14.7% from the beginning of the year, and new loans this year were RMB 6,124.1 billion, up RMB 446.4 billion from the same period last year. Now, it is well known that 600 million people earn less than 1,000 yuan a month; nearly 1 billion people earn less than 2,000 yuan a month. 1.4 billion people carry an average loan of 43.89 million yuan each.
China’s broad money M2 is the world’s largest, but the deposits do not mean that Chinese people are rich, China’s M2 is mainly derived from loans, in layman’s terms, that is, you loan 100 million yuan from the bank, not necessarily out or transfer, but continue to exist in the bank, the bank can use the 100 million yuan, released 800,000 yuan, so back to the circle to form bank deposits.
Enterprise loans grew faster, loan idle decreased, increased inflows into the real economy. the end of September, financial institutions local and foreign currency loan balance of 175.5 trillion yuan, an increase of 12.8%, an increase of 16.9 trillion yuan over the beginning of the year, an increase of 3.1 trillion yuan. Very noteworthy is the manufacturing industry medium and long-term loan growth rate of 30.5%, the growth rate of 11 consecutive months of increase; non-bank financial institutions loans 510.7 billion yuan, the growth rate of -35.5%. This is a relatively positive sign that lending is moving away from the virtual into the real.
The total scale of social financing is huge and has become a beast: the stock of social financing at the end of September was 280.07 trillion yuan, up 13.5% year-on-year. If we average the social financing to the head, it is equivalent to each person owes financial institutions 200,000 yuan. The lack of money is not only the ordinary people and enterprises, but also the general financial difficulties at all levels. Just within the scope of the central bank’s statistics, government bonds (excluding a large number of local financing platforms) amounted to 44.46 trillion yuan, an increase of 20.2%. This also indicates the financial distress of local governments everywhere.
I posted an article earlier this year called “Everyone Needs Money Except the Central Bank,” and it seems to be true. So how does the central bank save the economy and put money into society? The first is the reduction of the reserve requirement ratio (RRR). This year, the central bank lowered the reserve requirement ratio three times to release 1.75 trillion yuan of long-term funds. At the end of September, the balance of medium-term lending facilities was 4.1 trillion yuan, up 410 billion yuan from the beginning of the year. There are also standing lending facilities. Third, the central bank conducted 1.8 trillion yuan of refinancing and rediscounting.
Central banks around the world generally do not lend directly to entities, but through banks and other financial institutions. Central banks can realize their intentions through window guidance or direct funding and preferential policies. China’s central bank has been innovative this year, on June 1, the People’s Bank of China created two direct monetary policy tools to the real economy: the universal small and microenterprise loan extension support tool, universal small and microenterprise credit loan support program.
The central bank reported that the financial administration guided the financial sector to make concessions to the real economy by deepening the reform of LPR (loan market quotation rate) to promote lower lending rates, implementing two direct-to-real economy monetary policy tools, and reducing fees and charges. It is estimated that by the end of October, concessions of about 1.25 trillion yuan have been realized. It is expected that with the further embodiment of the policies, the target of 1.5 trillion yuan of concessions will be achieved for the whole year.
In the third quarter, revenue decreased, with general public budget revenue of 14.1 trillion yuan, down 6.4% year-on-year, of which tax revenue of 11.9 trillion yuan, down 6.4% year-on-year; most taxes are decreasing, however, personal income tax increased 7.3% year-on-year. However, the personal income tax increased by 7.3% year-over-year. Raising the tax threshold does not lower the tax, but lowering the tax rate significantly is the only way to truly lower the tax, again.
Overall, China’s economy is in debt and has reached a difficult period. The only way to get out of this huge debt dilemma on the fiscal side is to cut taxes and eliminate fees and charges, thus relieving pressure on monetary instruments.
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