Forbes reports that China loan growth hits record high, with M2 up 25.5 percent.
(emphasis mine) [my comment]
China loan growth hits record high, M2 up 25.5 pct
04.10.09, 10:12 PM EDT
CHINA-ECONOMY/MONEY (URGENT):China loan growth hits record high, M2 up 25.5 pct
BEIJING, April 11 (Reuters) - New yuan loans in March hit a record high of 1.89 trillion yuan ($276.6 billion), leaving total local currency-denominated loans 29.8 percent higher than a year earlier, the People's Bank of China said on Saturday.
Annual growth in China's broad M2 measure of money supply rose to 25.5 percent in March from 20.5 percent in February.
Growth in M1 money supply surged to 17.0 percent. Some economists are watching the narrower gauge closely for signs that businesses and consumers are switching more money to demand deposits -- not included in M2 -- as they prepare to ramp up spending.
The median forecast of economists polled by Reuters was for a 25.1 percent increase in the stock of loans and a 21.3 percent rise in M2.
Money supply (percent change on a year earlier):
Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun
M2 25.5 20.5 18.8 17.8 14.8 15.0 15.3 16.0 16.4 17.4
M1 17.0 10.9 6.7 9.1 6.8 8.9 9.4 11.5 14.0 14.2
M0 10.9 8.3 12.0 12.7 9.0 10.6 9.3 10.9 12.3 12.3
Yuan lending in the first quarter totalled 4.58 trillion yuan.
The government has said it wants banks to lend at least 5 trillion yuan over all of 2009 to support economic growth, and some economists are worried that the boom in lending is getting out of hand [economists are masters of stating the blatantly obvious]. They expect the central bank to act to slow the surge. [It won't happen (at least not yet). Right now, growth is the most pressing concern of Chinese authorities. Only once inflation gets into the double digits will China serious start to worry/panic about its money supply growth.]
Short-term bill financing accounted for 1.48 trillion yuan of the first quarter's new lending, or 32.3 percent of the total.
New yuan lending in 2008 was 4.91 trillion yuan, up 35.3 percent from 3.63 trillion yuan in 2007.
Yuan loans (trillions, percent change from a year earlier):
Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun
Lvl 35.0 33.1 32.0 30.4 29.6 29.8 29.7 29.3 29.0 28.6
Chg 29.8 24.2 21.3 18.8 16.0 14.6 14.5 14.3 14.6 14.1
My reaction: Chinese loan growth and money supply is exploding.
1) New yuan loans in March hit a record high of 1.89 trillion yuan ($276.6 billion), 29.8 percent higher than a year earlier. (Higher than 25.1 percent forecast)
2) Annual growth in China's broad measure of money supply (M2) rose to 25.5 percent in March from 20.5 percent in February. (Higher than 21.3 percent forecast)
3) Growth in M1 money supply surged to 17.0 percent from 10.9 percent in February.
4) Chinese authorities want banks to lend at least 5 trillion yuan over all of 2009 to support economic growth, and Yuan lending in the first quarter already totals 4.58 trillion yuan.
Conclusion: Ever since I wrote my article about predicting hyperinflation will begin in China, China's money supply growth has been accelerating. The graph below shows this monetary expansion nicely.
China is barreling towards hyperinflation. Right now, the only concern of Chinese authorities is growth, and to that end they have:
1) Stopped the appreciation of the yuan. This means the yuan is becoming more and more undervalued has the Chinese currency props up the devaluing dollar. At the same time, as the yuan becomes more undervalued, China's trade surplus will grow, forcing the creation of ever greater quantities of yuan to maintain the dollar peg.
2) Lowered interest rates to support economy. The desire to keep rates low limits China's ability to control its money supply. If the central bank of china tries to sell sterilization bills to mop up extra liquidity, it will drive up interest rates.
3) Encouraged loan growth to boost domestic consumption. China is lowering reserve requirements and lending restriction to encourage consumer lending. While these efforts have been successful (China's service sector is experiencing double digit growth), it also leads to out of control money supply growth.
As long as china keeps the yuan undervalued, interest rates low, and lending unrestricted, Chinese money supply growth will continue exploding until inflation becomes rampant. Once inflation hits the high double digits, Chinese authorities will panic and dump the dollar to save the yuan.