Photo: flickr: showbizsuperstar
This shouldn’t be a huge surprise, but the Chinese government has been known to play with it’s M2 (monetary supply) figure and, on occasion, omit the number all together, reports FT Alphaville.This is pretty interesting, as M2 is a major monetary policy target for the country’s central bank, the People’s Bank of China (PBoC).
The PBoC reported M2 growth at 15.7% in February, down from 17.2% in January. However, Standard Chartered’s Wei Li and Stephen Green argued that the February figure was actually 17.4%. Not a huge difference, until you know that China’s ceiling rate was 16%.
Here’s where Li and Green think the discrepancy between their figure and the government’s came from:
…we believe the major cause of the sharp decline in M2 growth has been a significant statistical revision of the accounting standards for deposits and loans. As a result of this, CNY 810bn of outstanding deposits and loans have been lost, and this has affected the base on which M2 is calculated.
Throw revision out the window. After February, M2 completely disappeared from PBoC reports. Then the number showed up again in July, with the PBoC saying that M2 had fallen by 1.2%.
To that, Li and Green said, yet again, that the government is making some important revisions. By their estimation, M2 actually fell by only 0.2%. That’s because the PBoC wasn’t including certain “off balance sheet” numbers, like wealth management products (WMPs), that are becoming more and more popular.
On a bank’s balance sheet, money that buys a WMP is treated differently from money that is put into a savings account. WMPs are in principle risky investments, and the investors, not the bank, bear potential gains/losses. The bank manages the investment or simply provides a custodian service. In contrast, deposit savings are risk-free assets for depositors; banks are obligated to return the funds in full, plus any interest. Because of this difference, when households or companies purchase WMPs, their money is reclassified and is no longer recorded under deposit saving accounts.
This has prompted the PboC to admit that its figures are low, and that it needs to come up with an M2+ concept that includes off balance sheet numbers– Not something that happens every day.
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