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SCIO press conference on forging ahead with confidence, upholding fundamental principles, breaking new ground, supporting high-quality development of real economy

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At the end of 2022, M2 money supply growth increased 11.8% year on year. In January this year, M2 achieved an increasing growth rate of 12.6% over the same period last year, the highest in six years. How do you view the rapid growth of M2? Thank you.

Liu Guoqiang:

Thank you for your question. At the end of January this year, the balance of M2 was 273.81 trillion yuan, a year-on-year increase of 12.6%, which was 0.8 and 2.8 percentage points higher than the end of December and the same period of last year, respectively, continuing its rapid growth since 2022.

The high growth rate of M2 is mainly due to the intensified measures of counter-cyclical adjustments in macro-regulation and the strengthening of financial support for the real economy by the financial system. Since 2022, due to the impact of unexpected domestic and foreign factors, China's economy has experienced acute downward pressure. In order to maintain macroeconomic performance, vigorous efforts have been made in counter-cyclical control policies, credit has maintained rapid growth, and derivative currencies have increased accordingly.

China has a financing structure dominated by indirect finance. Indirect finance is mainly based on credit loans, and direct finance mainly covers stocks and bonds. The assets of depository financial institutions in China account for more than 60% of the financial sector, which is much higher than that of developed countries in Europe and the United States. Indirect finance will lead to more derivatives of deposits, driving up the total amount of money. Since last year, M2 has been mainly generated through the expansion of assets in indirect financing. At the same time, due to fluctuations in the financial market, funds from wealth management and other asset management products have returned to the balance sheet, which has also led to the expansion of bank balance sheets, so the growth rate of M2 has been relatively high. If we combine the on-balance and off-balance sheets and look at social mobility in a comprehensive manner, the M2's growth rate is about 9.4%.

In addition, there are certain differences between China's M2 threshold and major countries. China's M2 threshold is relatively low, and there are no restrictions on the length and number of deposits, while other countries implement restrictions. For example, the U.S.'s M2 only includes fixed-time deposits of less than $100,000 and does not include fixed-time deposits greater than $100,000. In the European Central Bank ECB's M2, fixed deposits only include those of two years or less. The differences in these thresholds also makes the total size of China's M2 appear relatively large.

In general, while we are making counter-cyclical adjustments to maintain stable macroeconomic performance, our monetary policy remains prudent, and we will resolutely refrain from resorting to a deluge of strong stimulus policies.

In the next stage, the PBC will follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, thoroughly study and put into practice the spirit of the 20th CPC National Congress and the Central Economic Work Conference, and continue to maintain a prudent monetary policy. While focusing on expanding domestic demand and vigorously supporting the real economy, we will refrain from resorting to a deluge of strong stimulus policies. Thank you.