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Chinese money update: still supportive
16 septembre 2025 par Simon Ward
The Chinese economy has slowed sharply but money trends are giving a modestly reassuring signal.
Six-month growth of industrial output and retail sales eased further in August, while fixed asset investment remained in deep contraction, following dramatic June / July weakness. Home sales also continued to slide – see chart 1.
Chart 1
Investment weakness has recently spread from the property sector to state-controlled spending and manufacturing, reflecting anti-“involution” policies.
August money numbers, however, argue against embracing economic pessimism, at least for now. Six-month growth of narrow money – as measured by the new M1 definition incorporating household demand deposits – rose modestly for a third month, following a sharp drop in April / May. Broad money momentum has also edged up, with both series comfortably within their ranges in recent years – chart 2.
Chart 2
Sectoral details, meanwhile, indicate that the earlier drop in narrow money growth reflected a fall in demand deposits of government-related bodies (excluding central government), consistent with recent weakness in state-controlled investment. Growth of an alternative “private sector” measure comprising holdings of households and non-financial enterprises remains close to its recent high – chart 3.
Chart 3
The fall in demand deposits of government-related bodies, moreover, was balanced by a strong rise in central government (i.e. fiscal) deposits, suggesting yet-to-be-deployed firepower. Six-month growth of an expanded measure including such deposits has also remained solid.
The message of supportive monetary / financing conditions is reinforced by survey evidence – the corporate financing index from the Cheung Kong Graduate School of Business survey is above its long-run average – as well as recent yield curve steepening.
Despite the April / May slowdown, six-month narrow money momentum has remained above nominal economic growth, with the “excess” providing fuel for the rally in equities.
