Summary: How did China's financial markets perform in the first half of the year under the impact of the pandemic? According to the latest financial statistics released by the central bank, at the end of June, the broad money supply (M2) balance stood at 213.49 trillion yuan, up 11.1% year on year, with growth flat compared with the end of the previous month and 2.6 percentage points higher than the same period last year. Preliminary statistics show that the cumulative increase in total social financing in the first half of 2020 was 20.83 trillion yuan, 6.22 trillion yuan more than in the same period last year. In the first half of the year, new RMB loans increased by 12.09 trillion yuan, 2.42 trillion yuan more than a year earlier.
How did China's financial markets perform in the first half of the year under the impact of the pandemic? According to the latest financial statistics released by the central bank, at the end of June, the broad money supply (M2) balance stood at 213.49 trillion yuan, up 11.1% year on year, with growth flat compared with the end of the previous month and 2.6 percentage points higher than the same period last year. Preliminary statistics show that the cumulative increase in total social financing in the first half of 2020 was 20.83 trillion yuan, 6.22 trillion yuan more than in the same period last year. In the first half of the year, new RMB loans increased by 12.09 trillion yuan, 2.42 trillion yuan more than a year earlier.
On July 10, the central bank held a press conference on the release of financial statistics for the first half of 2020. Heads of several central bank departments gave a comprehensive interpretation of financial market performance in the first half of the year and outlined the direction of monetary policy for the second half.
"The stance of monetary policy remains prudent, and monetary policy is more flexible and appropriate. We are now placing greater emphasis on the word 'appropriate'," said Guo Kai, Deputy Director General of the Monetary Policy Department of the central bank, at the press conference. He noted that in the second half of the year, prudent monetary policy should be more flexible and appropriate, maintain appropriate aggregate supply, and comprehensively utilize various monetary policy tools to keep liquidity reasonably ample. In addition, it is necessary to seize the key of reasonable profit concession to protect market entities, with particular attention to changes in loan interest rates, continue to deepen LPR reform, and promote the continued decline of actual lending rates and a marked reduction in the comprehensive financing costs of enterprises, thereby providing favorable conditions for economic development and for stabilizing enterprises and ensuring employment.
Ruan Jianhong, Director General of the Survey and Statistics Department of the central bank, stated that in the second half of the year, the financial system will continue to do a good job in the "six stability" work, implement the "six guarantees" tasks, and increase financial support for stabilizing enterprises and ensuring employment. It is expected that M2 and total social financing will maintain steady growth.
In the first half of the year, the vast majority of new RMB loans were channeled into the real economy. Since the beginning of this year, the People's Bank of China has actively responded to the new challenges brought by the pandemic, making prudent monetary policy more flexible and appropriate, continuously optimizing the credit structure, improving the structured monetary policy tool system, innovating monetary policy tools that directly reach the real economy, and guiding financial institutions to increase financial support for the real economy, especially for small and micro enterprises and private enterprises.
Ruan Jianhong said that overall, liquidity is currently reasonably ample, and the growth rates of broad money supply and total social financing are higher than last year.
Data show that at the end of June, the broad money supply (M2) balance stood at 213.49 trillion yuan, up 11.1% year on year, flat compared with the end of the previous month and 2.6 percentage points higher than the same period last year. The narrow money supply (M1) balance was 60.43 trillion yuan, up 6.5% year on year, 0.3 percentage points lower than the end of the previous month and 2.1 percentage points higher than the same period last year. The currency in circulation (M0) balance was 7.95 trillion yuan, up 9.5% year on year. In the first half of the year, net cash injection reached 227 billion yuan.
According to preliminary statistics, the outstanding amount of total social financing at the end of June was 271.8 trillion yuan, up 12.8% year on year. Among this, the outstanding RMB loans to the real economy were 163.9 trillion yuan, up 13.3% year on year; the outstanding foreign currency loans to the real economy, converted into RMB, were 2.49 trillion yuan, up 12.6% year on year.
In terms of loans, new RMB loans increased by 12.09 trillion yuan in the first half of the year, 2.42 trillion yuan more than a year earlier. By sector, household loans increased by 3.56 trillion yuan, of which short-term loans increased by 755.2 billion yuan and medium- and long-term loans increased by 2.8 trillion yuan. Loans to enterprises (and public institutions) increased by 8.77 trillion yuan, of which short-term loans increased by 2.82 trillion yuan, medium- and long-term loans increased by 4.86 trillion yuan, and bill financing increased by 969.7 billion yuan. Loans to non-banking financial institutions decreased by 277.5 billion yuan.
Based on the above data, financial support for the real economy has continued to increase in the first half of the year, with relatively large increases in corporate loans. Ruan Jianhong stated that this is the result of both increased demand for funds from real enterprises and strengthened financial support. In terms of loan structure, the vast majority of RMB loans were channeled into the real economy. Among loans to enterprises and public institutions, short-term loans increased by 1.36 trillion yuan year on year, providing necessary liquidity support to enterprises, while medium- and long-term loans increased by 1.37 trillion yuan year on year, which is very conducive to supporting the resumption of work and production.
It is reported that a recent central bank survey of credit demand across more than 300 cities showed that both credit supply and demand are strong, and the drawdown rate of approved loans by financial institutions has risen markedly. The scale of corporate loans already approved by surveyed banks currently generally exceeds that of the first three quarters of last year. Corporate demand for funds is also relatively strong, with the drawdown rate 5.1 percentage points higher than last year.
H2 prudent monetary policy should be more flexible and appropriate. At the 12th Lujiazui Forum held last month, central bank Governor Yi Gang stated that the central bank has used quantitative monetary policy tools to expand aggregate supply, focusing on solving the difficulty of financing. A series of strong support measures have been introduced in the first half of the year and have achieved good results. Looking ahead to the second half of the year, monetary policy will continue to keep liquidity reasonably ample, and it is expected to drive new RMB loans of nearly 20 trillion yuan for the full year, with total social financing increments exceeding 30 trillion yuan.
Although China has been severely hit by the pandemic this year, overall economic operations and financial market operations have remained normal, with no panic or market failure. Guo Kai said that since the outbreak of the pandemic, China's monetary policy has followed two main lines. The first is the counter-cyclical adjustment of normal monetary policy, supporting the real economy through aggregate, price, and structural tools, so that money and credit can provide sufficient support for economic recovery. The second is special and phased monetary policy tools introduced in response to the pandemic.
When asked about the sustainability of credit and social financing growth in the second half of the year, Guo Kai predicted that credit demand in the second half would remain relatively stable, and money and credit in the second half would be slightly higher than last year, at around 20 trillion yuan.
Ruan Jianhong stated that based on current development and survey conditions, it is expected that money and credit, as well as social financing, will maintain steady growth in the second half of the year.
"The stance of monetary policy remains prudent, and monetary policy is more flexible and appropriate. We now place greater emphasis on the word 'appropriate'," Guo Kai said. "Appropriate" has two meanings. One is that the aggregate should be appropriate, and credit supply should match the pace of economic recovery. If credit is supplied too quickly, faster than economic recovery, it will lead to idle funds and the problem of credit funds not being effectively used. The second is that prices should be appropriate. It is necessary to guide financing costs further down and pass on benefits to the real economy. At the same time, we should recognize that an appropriate decline in interest rates does not mean the lower the better. Excessively low interest rates are also unfavorable. If interest rates are seriously lower than the level commensurate with the potential economic growth rate, it will create problems of arbitrage, misallocation of resources, and funds potentially flowing to areas where they should not go.
Guo Kai further pointed out that in the second half of the year, prudent monetary policy should be more flexible and appropriate, maintain appropriate aggregate supply, comprehensively utilize various monetary policy tools, and keep liquidity reasonably ample. In addition, it is necessary to seize the key of reasonable profit concession to protect market entities, with particular attention to changes in loan interest rates, continue to deepen LPR reform, promote the continued decline of actual lending rates and the marked reduction of enterprise comprehensive financing costs, thereby providing favorable conditions for economic development and for stabilizing enterprises and ensuring employment.