Renminbi loans outstanding at the end of January were 176.32 trillion yuan, up 12.7% year on year, 0.1 percentage point lower than the end of last month and 0.6 percentage point higher than the same period of last year.
The total assets of the central bank stood at 38.9 trillion yuan at the end of January, a slight increase of 145.6 billion yuan from the end of last year, according to the latest data released by the central bank. Analysis, mainly the central bank assets end of the “other assets” caused by expansion. The following is an analysis of the changes of important subjects.
Foreign exchange funds outstanding: central bank balance sheet Foreign assets include foreign exchange, currency gold and other foreign assets, which are the asset classes held by central banks in the highest proportion. Data showed that the balance of foreign exchange funds outstanding by the central bank in January was 21.1 trillion yuan, an increase of 9.2 billion yuan month-on-month.
Since 2002, after China’s entry into the WTO, exports have increased greatly, and enterprises have obtained a large amount of foreign exchange. Under the background of forced foreign exchange settlement and sale at the beginning, the central bank absorbed the vast majority of foreign exchange and released corresponding RMB, forming foreign exchange funds outstanding. Coupled with the strong expectation of RMB appreciation, the influx of hot money further rapidly increased the foreign exchange assets held by the central bank.
However, since 2014, the depreciation expectation of RMB began to appear, capital began to outflow, and the foreign exchange assets held by the central bank began to decrease significantly, which was basically stable after 2017. Since last year, China has taken the lead in controlling the epidemic. The rapid recovery of production capacity has significantly improved the foreign trade situation throughout the year, and capital and financial items have also shown an inflow trend, but the funds outstanding for foreign exchange have not increased significantly. According to CITIC Securities, the reason is that a large amount of foreign exchange has not formed RMB assets after flowing into China’s banking system, but has been reinvested overseas.
Creditor’s rights to other depository companies: “Creditor’s rights to other depository companies” means that the central bank lends money to the banks and forms claims to the banks. The project is mainly formed by the operation of monetary policy tools such as reverse repurchase, MLF(medium-term lending facility), PSL(mortgage supplementary loan) and relending.
The balance of this account was 13.2 trillion yuan in January, down 128.3 billion yuan month-on-month, mainly due to the decline of about 180 billion yuan in the balance of reverse repos.
Other assets: the balance of “other assets” at the end of January was 1.93 trillion yuan, an increase of 272 billion yuan from the previous month. Market participants speculate that other assets may consist mainly of fixed assets and equity investments in financial institutions.
The “other assets” move in January 2019 has also attracted a lot of attention and speculation among market analysts. In this regard, Ruan Jianhong, director of the Bureau of Investigation and Statistics of the People’s Bank of China, said at the briefing on the interpretation of financial statistics data of the People’s Bank of China that the “other assets” in the balance sheet of the People’s Bank of China are the collection of asset items not separately listed, mainly including some miscellaneous asset items and temporary receivable items. Many of these projects will be seasonal towards the end of the year. These seasonal variations will subside or dissipate as the year-end timing passes.
Reserve currency: Reserve currency is the base currency, including “currency issuance”, “deposits of financial companies” and “deposits of non-financial institutions”. Reserve currency balances stood at $31.68 trillion at the end of January, down $1.36 trillion from the end of last year, mainly due to a decline in “financial company deposits”.
Financial company deposits include banks’ statutory deposit reserves and excess deposit reserves. Excess bank reserves declined in January as demand for cash increased in the run-up to the Lunar New Year.
Government deposits: Government deposits on the central bank’s balance sheet have a clear seasonal character. At the beginning of each season, January, April, July and October will show a significant increase, while at the end of the season, March, June, September and December will see a decrease. This seasonal characteristic is mainly due to the impact of corporate tax payment at the beginning of the quarter and fiscal expenditure concentration at the end of the quarter. Government deposits stood at 5.35 trillion yuan at the end of January, up about 1.5 trillion yuan from the previous month.
In general, the central bank has achieved effective growth of money and credit while keeping its balance sheet basically stable. Renminbi loans outstanding at the end of January were 176.32 trillion yuan, up 12.7% year on year, 0.1 percentage point lower than the end of last month and 0.6 percentage point higher than the same period of last year.
Since 2018, the central bank has cut the required reserve ratio 10 times, freeing up about 8 trillion yuan of liquidity, and the average required reserve ratio has been reduced from 15 percent to around 9 percent at present, according to Yi Gang, central bank governor, in June last year. The amount of money available to commercial banks has increased accordingly and the money multiplier has risen. On the one hand, RRR reduction is reflected in the shrinking of the central bank’s balance sheet; on the other hand, it is reflected in the monetary expansion effect formed by commercial banks by issuing more loans. At the same time, the central bank expands the balance sheet by means of monetary policy tools such as re-lending and re-discounting. Therefore, the central bank’s reserve requirement reduction and increase in re-lending are expansionary monetary policies, but reflected in the central bank’s balance sheet, the former is to shrink the balance sheet, the latter is to expand the sheet.
“In recent years, the balance sheet of central banks has been expanded by roughly the same amount as the balance sheet of central banks. The balance sheet of central banks has been basically stable at about 36 trillion yuan, which is different from the mechanism of the current substantial expansion of the balance sheet of central banks of major international economies. However, the balance sheets of China’s commercial banks have continued to expand reasonably and loans have maintained a relatively high growth rate, which also shows the continuous improvement of the transmission efficiency of monetary policy and the sound operation of the market mechanism.” Yi gang said.
(Author: Yang Zhijin)