China Abandons Loan Target And Develops "Total National Financing" Measure

Liu Mingkang, chairman of the China Banking Regulatory Commission, said that M2 money supply growth will be the key focus for the time being, while the annual new loan target which was used in the past will be scraped for now (via Wall Street Journal) before a new measure of “Total Society Financing” or “Total National Financing” comes into practice.

This new concept of “Total Society Financing” or “Total National Financing” was mentioned in a press release on 17 Feb 2011.  The rationale for using this new measure instead of new loan target is that as the financial system evolved, financing comes from a much more diverse sources.  Instead of relying solely on bank loans, companies and others can raise money from many other sources, such as equities, bonds, etc.  The “Total Society Financing” or “Total National Financing” will measure the following:

Chinese Yuan (Renminbi) loans + Foreign Currency loands + Entrusted Loans + Trusted Loans + Banker’s Acceptance + Corporate Bonds + Non-Financial Institutions’ equities + Insurance payouts + Real Estate Investments by Insurance Companies + Others

The People’s Bank of China thinks that this new measure is a better tool for macro-control as it has historically shown higher correlations with various economic indicators:

  Total National Financing Total New Loans GDP 0.85 0.73 Consumption 0.75 0.63 Investment 0.78 0.65 Industrial Value-added 0.68 0.55 CPI 0.65 0.54Source: People’s Bank of China

For the time being as the new measure is under development, M2 growth will be the key metric to look at.  The growth target for M2 this year is 16%.


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This article originally appeared here: China Abandons Loan Target And Develops “Total National Financing” Measure
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