In April this year, China’s financial data has been successively released, with analysts believing the data shows that the unilateral monetary easing policy of the Chinese Communist Party has been ineffective in stimulating the economy.
The data indicates that by the end of April 2024, the broad money supply (M2) balance was 301.19 trillion yuan, with a year-on-year growth rate decreasing from 8.3% in March to 7.2%. Compared to the previous month, M2 contracted by 3.6 trillion yuan, a decrease of 1.2%. Narrow money supply (M1) balance stood at 66.01 trillion yuan, showing a 1.1% increase from March, but a 1.4% year-on-year decrease and a 3.7% decrease compared to the previous month.
In April, household sector net new loans decreased by 516.6 billion yuan, marking the third consecutive April of declining household loans since 2022. The reduction amount has been expanding annually; in April 2022, it decreased by 217 billion yuan, and in April 2023, it decreased by 241.1 billion yuan. However, the reduction in April this year expanded by 1.1 times year-on-year. From January to April, household sector new loans decreased by 828.3 billion yuan, a 64% year-on-year reduction.
Meanwhile, household sector deposits also saw a significant decrease. In April, deposits decreased by 1.8755 trillion yuan, a year-on-year decrease of 1.73 trillion. From January to April, household deposits decreased by a total of 1.8 trillion yuan, contrasting with an increase of 2.9 trillion yuan during the same period last year.
Faced with historically low loan interest rates in April, the willingness of enterprises to increase loans was relatively low. Enterprises added 860 billion yuan in new loans, appearing to increase by 170 billion yuan year-on-year. However, excluding 838.1 billion yuan worth of bills, the actual loan willingness was less than 300 billion yuan. Among these, new medium to long-term borrowing was 410 billion yuan, approaching recent low levels. Short-term loans for enterprises within a year saw a net decrease of 410 billion yuan.
From January to April, enterprises added 8.6 trillion yuan in loans, showcasing an 11% year-on-year decrease. This indicates that enterprises have a lower willingness to expand their production, such as new investment projects and equipment upgrades.
The decrease in new deposits from non-financial enterprises was more severe. In April this year, non-financial enterprise deposits decreased by 1.8755 trillion yuan, which is 9 times the average for April in the past three years.
From January to April, non-financial enterprise deposits decreased by 1.7694 trillion yuan, whereas they had increased by 2.9341 trillion yuan during the same period last year. The net decrease in enterprise deposits reflects a contraction in their financial operations.
On May 11th, a report by Caixin indicated that the rare occurrence of negative growth in new social financing in April was mainly due to weak financing demand alongside the idle circulation of regulatory governance funds.
However, some analysts point out that with a 1.2% decrease in M2 and a 3.7% decrease in M1 month-on-month, coupled with a decrease in both household deposits and loans, the continued contraction of the household sector’s balance sheet signals a lack of willingness for households to loan for consumption. This anomaly in financial data sends a strong warning signal that the one-sided monetary easing policy lacks effective economic system reforms.
Starting in 2021, the CCP (Chinese Communist Party) began implementing interest rate cuts, reserve requirement reductions, and monetary easing measures. After three years, the willingness of enterprises to invest remains low, and the willingness of residents to consume is still subdued.
In response to this, Mars Macro, a well-known figure in the financial sector, a certified senior statistician, economist, and former adjunct professor at Changjiang University’s School of Economics, stated on May 13th that China’s current economic plight is mainly due to insufficient demand and surplus supply.
Data indicates that the Producer Price Index (PPI) on the supply side has been declining year-on-year for 19 months, with a 2.5% year-on-year decrease in April. The Purchasing Managers’ Index (PMI) has also witnessed a 14-month decline, with a 3% year-on-year drop in April.
Mars Macro believes that under such strong price signals, companies naturally refrain from blind investments to expand production. The lack of consumer demand doesn’t stem from the misconception of wealthy individuals unwilling to spend but rather from the stark reality of financial constraints. Currently, the top 20% of China’s middle to high-income class holds 80% of savings, while nearly half of Chinese citizens have a monthly disposable income not exceeding 1500 yuan, with savings accounts barely reaching four digits. Amid declining asset prices, the wealthy middle to high-income class refrains from investments, and the financially strapped low to middle-income class dreams of buying houses and cars but lacks the means to do so, as their top priority is sustaining basic livelihood.
Mars Macro emphasizes, “Regardless of the central bank’s reductions in reserve requirements and interest rates, residents have no willingness to loan or consume but actively seek to rebalance their balance sheets.”
Finally, Mars Macro asserts that the only way out of this predicament is through deepening economic system reforms.
Following the publication, over 200 netizens on Tencent shared their comments.
Many netizens expressed concerns about the economic downturn, noting that people lack the financial means to spend.
Netizen “HY Hong Yi” remarked, “The lack of consumer demand doesn’t stem from the misconception of wealthy individuals unwilling to spend but rather from the stark reality of financial constraints.”
One Tencent user revealed, “At the beginning of the year, the government in our region held meetings to ensure salary payments, but most units have begun delaying payments, some severely delayed for six to seven months. Many traditional well-known companies are also struggling, with many once thriving private enterprises closing due to environmental regulations.”
Another Tencent user stated, “Simply put, if businesses can’t make money, their products won’t sell. Residents can’t find good work, so they can’t earn money.”
Some netizens attributed the lack of spending among the public to the disruptive actions of the CCP.
Tencent user 1oz628m commented, “If you want people to spend money, you can’t let them have money. Therefore, it’s unsolvable.”
Netizen “Le Tao” relayed experiences with private business owners, emphasizing their fear of investing due to intensified inspections, leading to potential cutbacks, closures, or even bankruptcy.
“Emei Thirteen Rows” added, “At the current stage, enterprise loans are not for investment or production expansion but purely to plug financial gaps to survive.”