Li Xunlei: The M2 Growth Rate Will Be Adjusted To 15% Next Year.

For next year

The M2 growth rate will not have a significant impact on liquidity.

In the future economic growth in China, the scale control of M2 will be a difficult problem.

"If China's GDP growth in the past 30 years has been called an economic miracle, the growth rate of M2 is far greater than that of GDP, but it will remain a low inflation.

The growth rate of M2 in Japan and Korea in the period of rapid economic growth is compared.

The average annual growth rate of M2 in the two countries was 20% (1967~1973) and 34% (1966~1988) respectively, significantly higher than the current level in China, but the CPI growth rate of the same period was very high, for example, Japan's CPI reached 9% in 70s.

The total M2 in China is 70 trillion yuan, while the US M2 is 8 trillion and 600 billion US dollars, which is only 58 trillion yuan, but the scale of China's GDP is only 1/3 of the United States.

If we compare the proportion of M2 between China and the United States in GDP, we will find that in the past 20 years, China's data has risen sharply, from 65% in 1986 to nearly 200% in 2010, but the US has changed little and remained at 60%.

In 2009, M2 accounted for 147% of GDP in Korea and 159% in Japan, and the proportion of M2/GDP in Japan and South Korea during the period of high economic growth was only about 100%.

This means that the scale of M2 will be difficult to control in the future of China's continued economic growth.

China's M2 growth rate has greatly exceeded the growth rate of GDP, the average growth rate over the past ten years has exceeded 18%, while the average CPI level in the past ten years is only about 1.8%, which is seriously deviated from the "M2 growth rate =GDP growth rate +CPI" in monetary theory.

Why did M2 grow over the past ten years?

"There are many reasons for the extraordinary growth of M2. We cannot simply blame the central bank."

I pointed out at the forum that there are four main reasons for the extraordinary growth of M2 in China: first, the increase in foreign exchange reserves; two, the rapid increase in credit scale; three, the sharp rise in asset prices; and four, the low level of financial leverage.

I have elaborated on the above four reasons in my recent report.

The main reasons are: first, the huge amount of foreign exchange occupied is the cause of the rising of M2. At present, China's foreign exchange reserves reach 2 trillion and 400 billion US dollars, accounting for about 27% of M2. From the annual new angle, the main contribution of the foreign exchange accounts in 2004 to 2008, during which the proportion of the new M2 is about 50%, the trade balance is expanding and the hot money inflow is the main reason.

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Second, China's economic growth shows obvious investment pull characteristics. The scale of credit growth is relatively fast, the average annual growth rate has been 15.6% in the past ten years. The new deposits, government revenue and land auction revenue derived from the rise of deposits and corporate profits have also led to an increase in the government's new deposits. With the domestic demand replacing the external demand, it has become the main driving force of the economy, and credit will also become the main source of liquidity creation.

Third, asset prices based on real estate have risen sharply. It is said that the total market capitalization of domestic and urban residences has reached 90 trillion yuan, which is 5 times higher than that of ten years ago. Moreover, most real estate pactions have not been carried out through bank mortgage loans. Therefore, the soaring price of real estate has contributed to the expansion of M2 scale.

Fourth, from the perspective of financial leverage, China's loan to deposit ratio is lower than that of Korea and Japan, around 66%, while Korea is more than 100%; the leverage ratio of US investment banks is even higher, and 20 times more than before the subprime crisis, which is only 1.5 times that of China's securities dealers.

M2 growth is not sustainable in the next ten years

"Although the scale of China's M2 is large enough, it still has a strong driving force for the continued expansion of M2 in terms of its growth rate."

According to my estimate, "if we calculate the growth rate according to the consistent target of the regulatory authorities, that is, 17%, the total M2 will reach 340 trillion yuan in the next ten years; if it is 15%, it will also reach 282 trillion yuan.

This means that the ratio of money to GDP may be more than 3 times.

This situation will bring a series of hidden risks, such as the risk of hyperinflation, the risk of asset bubble collapse, or the devaluation pressure in the context of the convertibility of the renminbi.

In the 22 years of 1966~1988, M2 grew at an average annual rate of 34%, even 19% in the first 5 years of the Asian financial crisis. The result is that after the two major crises of the Asian financial crisis in 1997 and the subprime mortgage crisis of 2008, the Korean won's large devaluation has emerged, though the M2/GDP of Korea is far below that of China.

The future of China's economy will be hard to answer. But for sustained economic growth, the growth rate of M2 in the past ten years is unsustainable.

The growth rate of M2 in Japan and South Korea has also experienced a decline after rapid growth. The average growth rate of ~1990 in Japan in 1980 was 9.3%, while that in Korea in 1992 was 19.6% in ~1997 and 11% in 1997, compared with that in 1992.