On May 5th, the central bank released the statistical report on financial data for May. The report shows that M1 fell by 4.2% year-on-year at the end of May, while M2 increased by 7%, but the growth rate slowed down compared with April. Industry insiders believe that the slowdown in M2 is affected by the high base from last year, data squeezing and phase factors. The decline in M1 growth is related to regulation of manual interest payments and deposit diversion factors. However, some voices in the market have pointed out that the current M1 growth rate is underestimated.

At the end of May, the stock of social financing was 39.193 trillion yuan, an increase of 8.4% year-on-year. Recently, the fiscal policies have been implemented more quickly, and the structure of social financing has been continuously optimized. At the end of May, the balance of RMB loans was 24.873 trillion yuan, nearly one trillion yuan higher than in April, and the flow of credit resources is directed towards key areas and weak links.

It is worth noting that authoritative figures have stated that the correlation between the scale of finance and China's economic development is gradually weakening, and attention to the total volume of finance should be gradually reduced. In addition, the adjustment of China's economic structure and transformation and upgrading of the economy have brought about a shift in the demand for credit, and high-quality economic and social development in the future will not rely on rapid expansion of credit scale.

Social financing has overall steady growth, and the structure continues to be optimized.

At the end of May, the stock of social financing was 39.193 trillion yuan, an increase of 8.4% year-on-year, which basically matched the target of economic growth and price level expectations. Social financing increased by about 2.06 trillion yuan in May.

Industry insiders indicate that the YoY growth rate of social financing was 8.4% at the end of May, which was generally consistent with the previous month. The pace of corporate and government bond issuance has intensified recently, providing stable support for the growth rate of social financing, and to some extent reflecting the acceleration of the implementation of fiscal policies, and the continuous optimization of the structure of social financing.

The cumulative increase in the scale of social financing for the first five months was 14.8 trillion yuan.

In fact, industry insiders indicate that the central bank has gradually downplayed the comparison of the YoY increase in the stock of finance, believing that this method is not easy to understand and not accurate enough to measure the effectiveness of financial resource support. 'If we require YoY increase in the stock of finance, we are actually increasing on the basis of increasing net increase in a certain period compared with other periods. Measuring the changes in the stock of finance data should not be in terms of YoY increase.'

M2 increased by 7%, and the growth rate of M1 may be underestimated.

The growth of M2 has slowed down. At the end of May, the balance of broad money (M2) was 301.85 trillion yuan, an increase of 7% year-on-year, but down 0.2 percentage points from April.

Industry insiders point out that the slowdown in the growth of M2 is the result of multiple factors. First, there was disturbance by the high base from last year. Second, the active water squeezing during the high-quality development phase. Third, the influence of phase factors--the scale of corporate and government bonds increased by nearly RMB 900 billion YoY in May, and some companies have repaid early, pulling down the growth of credit. In particular, special national bonds have been in high demand recently, and a large amount of resident and corporate deposits have flowed into the bond market.

At the end of May, the narrow money (M1) balance was 64.68 trillion yuan, a decrease of 4.2% year-on-year, and the growth rate had slowed down overall this year.

Industry insiders believe that the recent slowdown in the growth rate of M1 is related to factors such as the regularization of manual interest payments and the diversion of deposits. On the one hand, under the background of cracking down on capital rotation and stopping manual interest payments, some irregular corporate deposits have decreased simultaneously. On the other hand, with the diversification of wealth management methods, under the background of the decline in deposit rates, the role of wealth management products as "reservoirs" is obvious, and some current deposits have flowed into the wealth management market.

It is worth noting that the statistics of China's M1 only include cash and enterprise current deposits. With the promotion of financial deepening and the improvement of payment convenience, some studies have begun to focus on the situation where the growth rate of M1 is underestimated, believing that the nature of market fluid funds with a broader scope should be considered.

China International Capital Corporation's research report points out that funds similar to M1 but not included in the statistical scope also include: enterprise current deposits, cash management products, and the reserve funds of third-party payment agencies. These three types of funds all have characteristics similar to M1. If the above three types of funds are included in the calculation, the YoY growth rate of M1 in April is estimated to be between 0.6% and 1.1%, which is not so low.

Authoritative experts point out that the slowdown in the growth rate of M1 is also a reflection of the transformation and upgrading of the economy and the improvement of quality and efficiency. In history, the current deposits of real estate companies and local government financing platforms were the main part of corporate current deposits. With the regularization of government borrowing behaviors, the reduction in cash flow from real estate and local government financing platforms in the short term will so far result in a slowdown of M1 growth. However, this actually reflects long-term investment in the transformation and upgrading of the economic structure.

The added loans in May were almost one trillion, which is in line with expectations.

Loan growth is basically stable. At the end of May, the balance of RMB loans was 24.873 trillion yuan, an increase of 9.3% year-on-year. Among them, loans increased by 0.95 trillion yuan from April.

More credit resources flow to key areas and weak links of the national economy. At the end of May, the balance of medium and long-term loans in the manufacturing industry was RMB 13.55 trillion, a year-on-year increase of 21.8%, with the balance of medium and long-term loans in the high-tech manufacturing industry growing 22.7% year-on-year. The balance of loans for high-tech, specialized, special and new, and technology-oriented micro, small and medium-sized enterprises reached RMB 14.77 trillion, RMB 4.11 trillion, and RMB 2.68 trillion, respectively, with year-on-year growth of 11.6%, 15.9%, and 19.2%. The balance of inclusive small and micro loans was RMB 31.56 trillion, a year-on-year increase of 19.3%. The balance of loans related to agriculture reached RMB 60.03 trillion, a year-on-year increase of 12.1%. The growth rates of these loans were all higher than that of other types of loans in the same period, and their share of all types of loans further increased.

Industry insiders believe that the addition of new loans in May was still close to the level of RMB 1 trillion, which is not low, against the background that financial institutions lack sufficient demand reserves for credit deployment and the phenomenon of virtual deposit growth has eased. The decline in local government bonds and risk disposal of small and medium-sized financial institutions also had a downward effect on new loans in May. If these factors are restored, the actual increase in new loans in that month will be higher than that of the same period last year.

The focus on the total amount of finance should gradually be minimized.

Authoritative figures point out that over time, the correlation between financial scale indicators and China's economic development is gradually weakening. "China has long paid close attention to total financial indicators such as money supply and credit, and the implicit assumption is that they are highly correlated with economic growth. In fact, this correlation is weakening. Historically, major developed economies have gradually diluted and abandoned the focus on these indicators as financial disconnection intensifies."

Market research shows that before 2015, the correlation coefficient between M1 in China and the growth rate of industrial added value in the same period was close to 50%, but after 2015, it dropped to 15%; the driving force of credit deployment on economic growth has also weakened year by year. From 1953 to 1977, 1978 to 1993, 1994 to 2007, and 2008 to 2022, for every increase of RMB 1 in credit deployment, GDP increased by RMB 1.636, RMB 0.988, RMB 0.935, and RMB 0.489, respectively, with greatly weakened driving effects.

In addition, authoritative figures also point out that China's monetary credit is shifting from extensive expansion to intensive development, with structural adjustments and transformation and upgrading bringing about a "gear shift" in credit demand. The credit demand of traditional heavy industries, which has always relied heavily on credit funds, has become saturated, while the proportion of light asset service industries is continuously increasing, and they consume less credit. In the future, high-quality economic and social development will not rely on the high-speed expansion of credit scale.

Edited by Jeffrey