Chart of the week: 13 July 2018

What is Beijing's stance on China's economy? Looking at money supply might give a clue

Looking at Chinese authorities’ macro-policy stance, M1 growth rates offer some useful insights. As our "Chart of the Week" demonstrates, Chinese policy makers had stepped up stimulus massively in 2008 and 2009 to counter the fallout of the most severe global recession since the Second World War. Thereafter, M1 growth rates came down again, and hovered around 5% from 2012 to 2015. Facing a crash in the stock market, a weakening exchange rate, and increasing concerns about a so-called hard landing of the economy, authorities pushed the accelerator again. M1 growth rates surged to above 20%, economic growth stabilized, and stocks eventually found a bottom in early 2016.

Currently, the stock market is down for this year, the renminbi is weakening, and, not least due to the trade dispute, concerns about the health of China's economy keep rising. Hence, going forward, it would not come as a surprise to us if Chinese macro policy were to become more expansionary again. We will keep watching M1 growth as an indicator for that.