M2 slowdown will not significantly affect real economy

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People’s Daily, the mouthpiece of the Communist Party of China, has run a commentary to combat the belief that money supply has dropped to a new record low, which came after the release of new data.

According to the People’s Bank of China, China’s M2 money supply went up by 8.8% from a year earlier to 165.3 trillion yuan (US$25.04 trillion) in October. The growth rate is 2.8 percentage points lower than a year earlier, the report said.

Some fear that the sluggish growth of M2 will add to the economy’s downward pressure, affect the market liquidity and push up the interest rates.

But Wang Guan, the author of the commentary, thinks the slowdown is the result of the de-leveraging in the financial sector.

The figure reflects the fact regulators have strengthened financial supervision, shortened the funding chain and reduced off-balance-sheet business, he said.

Wang emphasizes that the M2 slowdown is a return to a reasonable level after a few years of high growth, which will help prevent financial risks and negate a significant negative impact on the real economy.

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