Wow — unprecedented 9x increase in M2 in 15 years


“The central bank is neither god nor a magician” China’s central bank chief Zhou Xiaochuan breaks silence over the yuan. Zhou called for broadened equity funding and direct finance to cut corporate leverage and eliminate “zombie” companies. He also warned that it was very difficult for regulators to find a big enough window of time to “right the wrongs”. Zhou’s pointed attack on the weekend comes months, if not weeks, before he is expected to step down from a job he has held since his opposite number in the United States was Alan Greenspan.

He is credited with steering the country’s robust economic growth in the past 15 years, freeing up interest rates at home and earning the yuan nominal international reserve currency status abroad. But Zhou has been criticised for allowing the economy to be flooded with money – China’s broad money supply, M2, surged from 18.5 trillion yuan at the end of 2002 to 165.6 trillion yuan (US$24.95 trillion) at the end of September.

His article was also included in the Communist Party’s handbook of official interpretations of policy from the party’s national congress last month, suggesting his view is a consensus position at the top rungs of power. Qingdao University economics professor Yi Xianrong said such a blunt accusation was rare from a Chinese official. Yi said China’s monetary policy had been held hostage by “the investment impulse of local governments”.

China has dealt with bad loans for more than a decade by printing money. So far not that many negatives, but a $25 trillion M2 money supply is a dragon that’s hard to ride.

Bonus fun: the last picture is very cute. HT: MF

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