China: watching the money supply as more stimulus revealed

Late last year, China's government provided more guidance about its stimulus plans. On Dec. 9, the CPC Central Committee called for "implementing a more proactive fiscal policy and a moderately loose monetary policy." It also emphasized "strengthening unconventional counter-cyclical adjustments" and explicitly called for "stabilizing the property and stock markets" for the first time. More specific announcements and plans were laid out during the Dec. 11-12 Central Economic Work Conference.

The People's Bank of China also held a conference on Jan. 3-4. The central bank said it would implement a moderately loose monetary policy to create a sound environment for stable growth.

Given this backdrop, we have charted trends for several measures of China's money supply, which can show how stimulus is making its way into the economy. We have visualized M1 ("narrow money"), M2 ("broad money"), aggregate financing and loans, showing how they historically move more or less in tandem.

November was notable as M1 stemmed its decline, posting a 3.7% drop year on year versus a 6.1% drop in October.

Stimulus can also show up in inflation data. In our second chart, we show how money-supply and credit trends have been related to producer price level changes over the past 10 years.

The "heat map" table in our third visualization tracks the structure of financial support for the real economy over 2023-24. In November, it is notable that government bonds were the main support for the increased aggregate financing – showing the important role of fiscal policy in stabilizing growth.

We also explore the importance of government bonds in our final chart. At the end of November, the stock of aggregate financing had increased by 7.8% year-on-year; government bonds increased by 15.2% on that basis. This reflects the government's increased infrastructure investment and policy funding.

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