#21 THE BRIEF: Spring Festival and Money Supply Madness
Money Supply, Real Estate prices, Govt bond yields, Inflation, App MAUs
The Brief is back after a Spring Festival hiatus. We are a pair of finance professionals based in China. This is The Brief, a collection of charts with commentary on China’s economy and what we find interesting.
Real estate prices
Govt bond yields
I. Money Supply
China’s M1 money supply year-on-year change declined (-1.9%, preliminary figure) for the first time (in the data series history). Why? The PBOC mentioned it declined due to Spring Festival holiday starting on the last business day of January, as opposed to the 10th of February last year.
China’s economic indicators are impacted by the “Spring Festival Effect.” Note the volatility around M0 and M1 in January and February.
Spring Festival is the big holiday in China. It’s when companies pay bonuses, often as cash in red envelopes (红包).
Let’s recall what the different measures of Money Supply are:
M0 is “narrow money,” the cash and coins in circulation,
M1 adds demand deposits (money that’s easily convertible to cash)
M2 adds short-term time deposits and 24 hour money-market accounts
Why did January’s M1 go down a little, -1.9%, while M0 jumped +18.5%. The answer is that M0 is a much smaller quantity. M0 in January was only 17.3% of M1 (CNY 10.6 Trillion vs 61.4 Trillion)! And get this, M0 is only 4.3% of M2.
What likely happened in January is a small amount of M1 (demand deposits) was converted into cash to pay staff their annual bonus.
Here’s China’s money supply over a longer period.
II. Real Estate prices declined in more cities in 2021
We plan on updating our deep dive on China’s real estate in 2022. See original piece and subscribe so you don’t miss it.
III. Govt Bond Yields
Here we compare the 10-year Govt bond yield for China, US, Germany and Japan.
China 10Y’s yield is in a downtrend since Q4-2020, the opposite of the US and Germany.
Apologies if this chart is too hard to read. It is a Spread Chart between China (top, white) and US (top, orange) 10Y yields, it shows the spread (bottom, yellow), or difference, narrowing. It is currently 1.2 standard deviations below the 10-year mean. The narrowest point was when Powell raised rates in Q4-2018 and markets had a tantrum, which was more than 2 standard deviations from mean.
Why are spreads narrowing? Measuring of inflation in the US are showing to be persistent, while the Fed continues to be accommodative with asset purchases. The Fed has signaled it will raise rates and even longer-term yields are responding now.
China’s Central Bank (PBOC) on the other hand is in an easing stance. Despite this easing stance, we see weak retail sales and (above) weak real estate markets in many cities, aka a weak consumer. Is the PBOC in a conundrum where further easing won’t be able to lift the consumer?
Let’s take a look at inflation and some drivers.
A. Purchaser Price Index
In the last THE BRIEF, we wondered if China’s PPI (for industrial purchasers) would break the record 10-consecutive months in double-digit territory from Jan-2005. As of January 2022, we have 9-consecutive months.
B. Components keeping PPI up
C. But CPI remains much lower
V. China Internet App MAUs
QuestMobile data tracks mobile apps first and foremost. Reliable in our opinion. This chart appeared in Essence Securities research note dated Jan 17, 2022.
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China Charts Team