China Added to Its Money Supply in 2022

Central bank intervention in the money supply has been ineffective for stimulating the country’s economy

A pedestrian walks past the People's Bank of China in Beijing, on Aug. 22, 2007. (Teh Eng Koon/AFP via Getty Images)

News Analysis

China has reportedly added trillions of yuan to the money supply in 2022, the most in its history and equivalent to the combined amount from the United States, Japan, and the European Union. However, the move may have no way to boost the Chinese economy, given a sluggish trend in GDP and a steep dive in the money circulation rate, expert suggests.

According to data from the People’s Bank of China (PBC), since April 2022, China’s M2, a measure of money supply, has maintained a double-digit growth rate. By the end of that year, M2 totaled 266.43 trillion yuan (about $38.78 trillion), an increase of 11.8 percent, or 28.14 trillion yuan ($4.096 trillion) from the previous year.

M2, a category of broad money, measures a country’s money supply, including cash, savings deposits, money market securities, and other time deposits, which can be seen as a key predictor of inflation.

This additional M2, as part of the PBC’s financial intervention, however, was unlikely as effective in stimulating economic growth of the corresponding magnitude as it has been in the past.

According to the Bureau of Statistics, China’s GDP for the year 2022 was 121.02 trillion yuan (about $17.62 trillion), a 3 percent increase, or 6.097 trillion yuan (about $887.48 billion) from the year prior. This growth was the second lowest in the past 30 years after 2020, when COVID-19 broke out.

In other words, China’s GDP growth lagged far behind the country’s money supply growth in 2022.

On Feb. 9, Chinese tax expert Ma Jinghao said in a Weibo post that China “printed” a total of 28 trillion yuan (more than $4 trillion) in 2022, an amount equivalent to the sum of the United States, Japan, and the European Union combined, while China’s GDP is only about 70 percent of that of the United States.

Ma cited U.S. economist Irving Fisher’s equation of exchange, MV=PQ, in which M = money supply, V = velocity of money, P = price of goods, and Q = quantity of goods and services—or, “money supply” multiplied by “velocity of money” is equal to “price level” multiplied by “quantity of goods and services”—that is, the number of goods and services in China shrank seriously in 2022, prices rose slightly (not considering housing price decline), and the money supply increased dramatically, thus, based on the equation, the velocity of money would plunge, Ma said.

The velocity of money is the rate at which the money in circulation is used to purchase goods and services. Low money velocity points to a contracting economy, a dilemma that China is grappling with.

Investors view stock index at a securities company in Shanghai, China, on June 10, 2008. (China Photos/Getty Images)

Stock Market, Real Estate, and Funds

Chinese stock market was moving on the track of overall decay last year. As of the close of trading on Dec. 30, 2022, the total market capitalization of A-shares was 84.85 trillion yuan (about $12.35 trillion), a decrease of 11.57 trillion yuan (about $1.68 trillion) from the beginning of the year; A shares dropped by 16.21 trillion yuan (about $2.36 trillion). With the midyear investor population of 206 million, the per-capita loss of stockholders would reach 78,700 yuan (approximately $11,500), according to data by Chinese financial service provider wind.com.cn, Sina reported on Dec.31, 2022.

Housing sales were also weak. The Bureau of Statistics released data that the sales of commercial properties in 2022 amounted to 13.33 trillion yuan (about $1.97 trillion), 4.86 trillion yuan (about $707.74 billion) less than the same period last year.

In addition, the total size of funds, financial services, trusts, and other bulk funds combined was 94.78 trillion yuan (about $13.8 trillion), down 1.03 trillion yuan (about $149.92 billion) from the beginning of 2022.

Where Does the Added Money Supply Go?

Throughout 2022, China has put the extra money supply, worth 28 trillion yuan ($4.096 trillion), into the market. Where has that money gone? Who took it away?

Total resident deposits, according to data by the PCB, soared by 26.26 trillion yuan (about $3.82 trillion), to reach as high as 120.3 trillion yuan (about $17.5 trillion) at the end of 2022.

Meanwhile, newly added yuan loans surged by 21.31 trillion yuan (about $3.1 trillion) in 2022, of which household loans were up 3.83 trillion yuan (about $557.5 billion) and enterprise and state entities loans were up 17.09 trillion yuan (about $2.49 trillion)—accounting for 80 percent of the total amount of loans.

According to the Bureau of Statistics, the year-over-year growth rate of state-owned holding investment, or fixed asset investment, rose to 10.1 percent in 2022 from 2.9 percent in 2021, while private investment fell to 0.9 percent from 7 percent.

In a word, state-owned or state-backed enterprises and organs and institutions can borrow money from the bank, and then convert the loans into deposits, or pass it on to associated interests, who in turn also deposit the money in banks. This cycle causes large amounts of money to pile up in banks.

The year 2022 is the year that China’s zero-COVID policy was strictly implemented nationwide, with billions of doses of vaccines, full-staff nucleic acid testing, and the infrastructure of large-scale makeshift hospitals and other interest-related industries consuming astronomical amounts of treasury funds.

The ministry of finance confirmed that national health spending driven by the need for epidemic prevention climbed to 2.25 trillion yuan (about $327.5 billion) in 2022, about 17.8 percent over the previous year.

Social Finance

Some structural problems can be found in the PCB’s report on the size of social financing in 2022.

First, the money supply is strong, but the social financing demand is relatively insufficient, and the phenomenon of capital idling has intensified. Since April last year, the growth rate of M2 has outpaced the growth rate of social finance stock.

Second, in 2022, the share of public financing in the credit market continues to rise, while the share of private financing continues to decline.

Last year, public financing included 4.04 trillion yuan ($580 billion) of special bonds, 740 billion yuan ($106 billion) of policy-oriented development financial instruments, and 800 billion yuan ($114 billion) of infrastructure loans, but these enormous amounts of funds did not leverage the growth of private financing; rather, they led to a decline in the multiplier effect of public investment, adding debts burden and risks.

China’s credit money issuance is essentially a wealth redistribution tool in favour of the ruling communist regime. For example, loan distribution has been particularly skewed toward the governmental bodies and corporations, while the share of labor’s income does not even reach the world average, and was far below that of countries such as Germany, France, the United States, Korea, the United Kingdom, and Japan.

The additional 28 trillion yuan ($4.096 trillion) did not go into the pockets of the people, so it will be much more difficult for the regime to achieve the purpose of boosting the economy by means of adding money supply, said a Jan. 29 report in NetEase, Chinese portal site.