china’s Social Financing in 2024: A Year of Recovery and strategic Shifts
In a year marked by economic recalibration, China’s financial landscape in 2024 saw meaningful shifts, as revealed by the latest data from the People’s Bank of China. The cumulative increase in social financing for the year stood at 32.26 trillion yuan, a notable decline of 3.32 trillion yuan compared too 2023. Despite this, the stock of social financing reached 408.34 trillion yuan by year-end, reflecting an 8% year-on-year increase.
A Closer Look at the Real Economy
Table of Contents
- Fiscal Expenditure Acceleration and Policy Shifts Drive M2 Growth in December 2024
- China’s M1 Revisions Signal Economic Optimism for 2025
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- A New Era for M1 Measurement
- Economic Outlook for 2025
- Key Takeaways
- What this Means for China’s Economy
- Key Drivers of M2 Growth
- M1 Decline Narrowing Amid Market Recovery
- local Debt and Non-Performing Loan Disposal
- Long-term Implications for Financial Stability
- Key Takeaways
- Looking Ahead
- Revisions to M1 Calculation
- Conclusion
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The real economy, a cornerstone of China’s financial strategy, saw RMB loans increase by 17.05 trillion yuan in 2024. However, this marked a 5.17 trillion yuan drop from the previous year. The balance of RMB loans issued to the real economy stood at 252.53 trillion yuan, accounting for 61.8% of the total social financing stock—a slight dip of 0.5 percentage points from 2023.
Bond financing, on the other hand, painted a more optimistic picture. net corporate bond financing surged by 283.9 billion yuan to 1.91 trillion yuan, while government bond financing saw an even more impressive rise, increasing by 1.69 trillion yuan to 11.3 trillion yuan. This growth underscores the government’s commitment to bolstering key sectors and stabilizing the economy.
Credit Structure Optimization and recovery Signs
2024 also witnessed a strategic optimization of the credit structure, with increased financial support for major strategies, key areas, and vulnerable sectors. Medium and long-term loans to the manufacturing sector grew by 11.9%, reaching 13.97 trillion yuan. Loans to ”specialized, special, and new” enterprises—a term referring to innovative, high-tech firms—rose by 13.0%, while inclusive small and micro loans surged by 14.6% to 32.93 trillion yuan.
The decline in social financing costs further fueled this recovery. In December 2024, the weighted average interest rate for newly issued corporate loans dropped to 3.43%, 36 basis points lower than the previous year. similarly, personal housing loan rates fell to 3.11%, an 88 basis point reduction, both hitting historic lows.
A Turning Point for Financing Demand
Industry insiders noted that December 2024 saw nearly 1 trillion yuan in new loans, a historically high figure. This surge, coupled with the sustained issuance of loans, signals a recovery in the financing demand of the real economy. Experts attribute this shift to the gradual emergence of incremental financial policies introduced as september 2024.
Market analysts, however, caution that the full impact of these policies will take time to materialize. “It will take some time from the introduction of macro policies to the adjustment of investment decisions by enterprises and residents, and from the improvement of credit demand to the growth of credit data,” they noted.
Key Data at a Glance
To better understand the trends, here’s a summary of the key figures from 2024:
| Metric | 2024 Value | Year-on-Year Change |
|————————————-|————————–|————————–|
| cumulative Social Financing Increase | 32.26 trillion yuan | -3.32 trillion yuan |
| Stock of Social financing | 408.34 trillion yuan | +8% |
| RMB Loans to Real Economy | 17.05 trillion yuan | -5.17 trillion yuan |
| Net Corporate Bond Financing | 1.91 trillion yuan | +283.9 billion yuan |
| Net Government Bond Financing | 11.3 trillion yuan | +1.69 trillion yuan |
| Medium & Long-term Manufacturing Loans | 13.97 trillion yuan | +11.9% |
Looking Ahead
As China navigates the complexities of its economic recovery,the data from 2024 offers both challenges and opportunities. The decline in social financing growth highlights the need for continued policy support, while the recovery in key sectors signals resilience. With historically low interest rates and a focus on strategic sectors, the groundwork for sustained growth appears to be in place.For more insights into China’s financial trends, explore the latest updates on total social financing and its implications for the global economy.
What are your thoughts on China’s economic trajectory in 2024? Share your views and join the conversation below.
Fiscal Expenditure Acceleration and Policy Shifts Drive M2 Growth in December 2024
In December 2024, China’s broad money supply (M2) saw a notable uptick, growing by 7.3% year-on-year, 0.2 percentage points faster than the previous month. This acceleration was driven by a combination of fiscal policy measures,shifts in interbank deposit rates,and strategic financial reforms. Simultaneously occurring, the narrow money supply (M1) declined by 1.4% year-on-year, though the rate of decline narrowed significantly, signaling improving market confidence and economic activity.
key Drivers of M2 Growth
Fiscal Expenditure Acceleration
December 2024 marked a significant month for fiscal expenditures, with government bond funds issued earlier in the year being deployed at a rapid pace. This surge in fiscal spending led to a substantial reduction in fiscal deposits, which are not included in M2. As these funds flowed into the real economy, they were converted into corporate deposits, driving M2 growth upward. According to the Oriental Jincheng macro team, fiscal deposits decreased by 750.4 billion yuan year-on-year in December, pushing up M2 growth by 0.3 percentage points.
Policy Reforms and Interbank Deposit Rates
The implementation of the “Initiative on Optimizing the Self-Disciplined Management of Non-Bank Interbank Deposit Interest Rates” on December 1, 2024, also played a critical role. The initiative reduced non-bank interbank demand deposit interest rates to the level of the 7-day reverse repurchase operation rate, narrowing arbitrage opportunities. Consequently, non-bank institutions, such as money market funds, shifted some of their interbank deposit funds into other asset forms, moderating deposit growth. Over the long term, this shift is expected to promote the growth of direct financing by encouraging more rational asset allocation.
M1 Decline Narrows Amid Market Recovery
While M1 experienced a year-on-year decline of 1.4% in December 2024, the rate of decline narrowed by 2.3 percentage points compared to the previous month. This marked the third consecutive month of improvement, reflecting the positive impact of incremental policy measures and a recovering property market. The Oriental Jincheng macro team attributed this trend to improved market confidence and increased business investment activity.
Local Debt and Non-Performing Loan Disposal
The reduction of localized debt and the disposal of non-performing loans also influenced financial data in December 2024. The central government introduced a debt package, adding a 6 trillion yuan debt limit to replace hidden debts. Special bond issuances and hidden debt replacements were concentrated in November and December, with a larger volume in December. Market estimates suggest that local debt resolution reduced loans by 1.2 trillion yuan in December, with special debt replacement accounting for 1.1 trillion yuan of this reduction.
Additionally, banks intensified efforts to dispose of non-performing loans at year-end, improving asset quality. It is estimated that financial institutions disposed of over 300 billion yuan in non-performing assets in December, impacting the year-on-year growth rate of financial aggregates.
Long-Term Implications for Financial stability
Despite the challenges posed by sluggish financing demand and financial “squeezing water” sence April 2024, the two-year average growth rate of M2 at the end of December stood at 8.5%. This figure remains higher than the sum of the expected economic growth target and the overall price level, indicating that the current broad money supply continues to support the real economy.
Key Takeaways
| Metric | December 2024 | Change from Previous Month |
|————————–|——————-|——————————–|
| M2 Growth Rate | 7.3% | +0.2 percentage points |
| M1 Growth Rate | -1.4% | Narrowed by 2.3 percentage points |
| Fiscal Deposit Reduction | 750.4 billion yuan | Pushed M2 growth by 0.3 percentage points |
| Local Debt Resolution | 1.2 trillion yuan | Reduced loans significantly |
Looking Ahead
As subsequent policies continue to take effect, effective financing demand is expected to improve further. The financial sector will focus on directing resources toward major strategies, key areas, and weak links, supporting sustained and stable growth in the total financial volume. Industry insiders predict that loan growth will exceed 8% in December 2024, with bank credit support significantly stronger than in previous years.
for more insights into China’s financial policies and their impact on the economy, explore our detailed analysis on fiscal expenditure trends and interbank deposit rate reforms.
What are your thoughts on the recent shifts in China’s monetary policy? Share your views in the comments below or join the conversation on Twitter.
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China’s M1 Revisions Signal Economic Optimism for 2025
In a significant move to enhance economic clarity and accuracy, the People’s bank of China (PBOC) has announced a revision to its M1 monetary aggregate calculation. Starting January 2025,the revised M1 will include personal demand deposits and non-bank payment institution customer reserves,marking a pivotal shift in how China measures its money supply. This change, announced by Zhang Wenhong, head of the PBOC’s Survey and Statistics Department, is expected to provide a clearer picture of the nation’s economic health and liquidity.
The revised M1 data,which now accounts for approximately 60% of the current total M1 due to the inclusion of personal demand deposits,has already shown a positive growth rate of about 4.0%. This adjustment is anticipated to turn the year-on-year growth rate of M1 from negative to positive by the end of January 2025. According to the Oriental Jincheng macro team, this shift reflects a broader trend of economic recovery, driven by a “moderately lose” monetary policy and increased financial investment.
A New Era for M1 Measurement
The PBOC’s decision to revise the M1 statistical caliber comes after extensive analysis of past data. The updated methodology not only enhances the correlation between M1 and economic growth indicators but also improves the stability of the data. Zhang Wenhong emphasized that this optimization is a response to the evolving financial landscape, where personal demand deposits and non-bank payment reserves play an increasingly significant role in the economy.
The inclusion of these elements is expected to provide a more comprehensive view of China’s monetary supply, particularly as the country navigates a period of economic transition. With the financial “water squeeze” effect weakening and a renewed focus on increasing monetary and credit investment, the revised M1 data is poised to serve as a critical tool for policymakers and analysts alike.
Economic Outlook for 2025
Looking ahead, the Oriental Jincheng macro team predicts a strong start to 2025, with new credit and social financing expected to rebound year-on-year. This optimism is fueled by the PBOC’s emphasis on guiding financial institutions to boost investment, which is likely to drive economic growth and stabilize the financial system.the team also forecasts that new credit in January 2025 will resume a year-on-year increase, while new social financing will continue to grow. These projections align with the broader trend of economic recovery, as China shifts toward a more accommodative monetary policy stance.
Key Takeaways
| Aspect | Details |
|———————————|—————————————————————————–|
| Revised M1 calculation | Includes personal demand deposits and non-bank payment institution reserves |
| Impact on M1 Growth | Year-on-year growth rate expected to turn positive by January 2025 |
| Economic Indicators | Enhanced correlation with growth metrics and improved stability |
| Monetary Policy | Shift to “moderately loose” tone, with increased financial investment |
| 2025 Forecast | New credit and social financing expected to rebound year-on-year |
What this Means for China’s Economy
The PBOC’s decision to revise its M1 calculation is more than just a technical adjustment—it’s a reflection of China’s commitment to economic transparency and stability. By incorporating personal demand deposits and non-bank payment reserves, the revised M1 data offers a more accurate portrayal of the nation’s liquidity and inflationary pressures.
As China enters 2025 with a renewed focus on economic recovery, the revised M1 data will serve as a critical barometer for policymakers and investors. With a “moderately loose” monetary policy and increased financial investment, the stage is set for a year of growth and stability.
For more insights into China’s monetary aggregates, explore the latest M1 data or delve into historical trends with the FRED database.
What are your thoughts on China’s revised M1 calculation? Share your insights and join the conversation below!
This article provides a complete analysis of China’s monetary policy shifts and their impact on the economy, especially focusing on the changes in M1 and M2 money supply metrics. Here’s a summary of the key points and insights:
Key Drivers of M2 Growth
- Fiscal Expenditure Acceleration:
– December 2024 saw a surge in fiscal spending due to the deployment of government bond funds issued earlier in the year.
– This led to a reduction in fiscal deposits (not included in M2) and an increase in corporate deposits, driving M2 growth by 0.3 percentage points.
- Fiscal deposits decreased by 750.4 billion yuan year-on-year.
- Policy Reforms and Interbank Deposit Rates:
– The “Initiative on Optimizing the Self-Disciplined Management of Non-Bank Interbank Deposit Interest Rates” was implemented on December 1, 2024.
– This initiative reduced non-bank interbank demand deposit interest rates to the level of the 7-day reverse repurchase operation rate, narrowing arbitrage opportunities.
– Non-bank institutions shifted some interbank deposit funds into other asset forms, moderating deposit growth and promoting long-term direct financing growth.
M1 Decline Narrowing Amid Market Recovery
- M1 experienced a year-on-year decline of 1.4% in December 2024, but the rate of decline narrowed by 2.3 percentage points compared to the previous month.
- This marked the third consecutive month of enhancement, reflecting positive policy impacts and a recovering property market.
- Improved market confidence and increased business investment activity were key contributors.
local Debt and Non-Performing Loan Disposal
- The central government introduced a debt package, adding a 6 trillion yuan debt limit to replace hidden debts.
- Local debt resolution reduced loans by 1.2 trillion yuan in December, with special debt replacement accounting for 1.1 trillion yuan.
- Banks disposed of over 300 billion yuan in non-performing assets,improving asset quality and impacting financial aggregates.
Long-term Implications for Financial Stability
- Despite challenges, the two-year average growth rate of M2 at the end of December stood at 8.5%, higher than the sum of economic growth targets and the overall price level.
- This indicates that the current broad money supply continues to support the real economy.
Key Takeaways
| Metric | December 2024 | Change from Previous Month |
|————————–|——————-|——————————–|
| M2 Growth rate | 7.3% | +0.2 percentage points |
| M1 Growth Rate | -1.4% | Narrowed by 2.3 percentage points |
| Fiscal Deposit Reduction | 750.4 billion yuan | Pushed M2 growth by 0.3 percentage points |
| Local Debt Resolution | 1.2 trillion yuan | Reduced loans significantly |
Looking Ahead
- Subsequent policies are expected to improve effective financing demand further.
- The financial sector will focus on directing resources toward major strategies, key areas, and weak links to support sustained and stable growth.
- Loan growth is predicted to exceed 8% in december 2024, with bank credit support significantly stronger than in previous years.
Revisions to M1 Calculation
- Starting January 2025, the revised M1 will include personal demand deposits and non-bank payment institution customer reserves.
- This change, announced by Zhang Wenhong, is expected to provide a clearer picture of economic health and liquidity.
- The revised M1 data already shows a positive growth rate of about 4.0%,reflecting a broader trend of economic recovery driven by a “moderately loose” monetary policy and increased financial investment.
Conclusion
The article highlights China’s proactive measures to stabilize and stimulate its economy through fiscal policy, monetary reforms, and strategic financial adjustments. The revisions to M1 calculation and the narrowing decline in M1 signal optimism for economic recovery in 2025. For deeper insights, readers are encouraged to explore detailed analyses on fiscal expenditure trends and interbank deposit rate reforms.
what do you think about these recent shifts in China’s monetary policy? Share your thoughts below or join the conversation on Twitter.
