The Monetary Economics of China

Guesses:

Rough Orders of Magnitude:

• China's money stock (M2) is equal to 200% of annual marketed GDP--close to $4 trillion, RMB 30 trillion--and is expanding at about 17% per year...
• China's monetary base is roughly 20% of annual marketed GDP--close to $400 billion, RMB 3 trillion--and is expanding at about 17% per year...
• China's annual marketed GDP is currently about $2 trillion, RMB 16 trillion--and is growing at about 10% per year...
• China's liquid foreign assets are roughly 60% of annual marketed GDP--$1.2 trillion, RMB 10 trillion--and are growing at $400 billilon, RMB 3 trillion a year...

The current configuration appears to be that China's exporters pile up a net trade surplus of RMB 3 trillion a year in foreign currency, which the central bank buys for RMB in order to maintain the exchange rate value it wishes. The exporters than deposit this cash RMB 3 trillion a year in the banks of Shanghai. The People's Bank of China then buys RMB 2.5 trillion of this cash for 3% not-very-tradeable bonds plus a promise of future capital injections should the banks get into trouble as long as they play ball, leaving RMB 500 billion to increase the monetary base and so support the growth of M2...

What Does the Banking Sector Look Like?

• Liabilities (deposits) of RMB 30 trillion...
• Assets
  • Reserves of RMB 3 trillion
  • Non-marketable low-interest state bonds of RMB 10 trillion
  • RMB 17 trillion in loans and private bonds...

Comments

[sa]

this is one of the best summaries, of the international capital flows situation in china today, i have seen till now.

[brad setser]

very nice --

I need to revisit some numbers i did over a year ago, but i think GDP is now more like $2.5 trillion, and my memory is that base money is more like 30% of GDP. Liquid foreign assets are at least $1.2 trillion - and maybe more like 1.4 trillion, depending on how you want to count the banking system's $300b in fx assets. The very liquid $1.2 trillion = 1.066 (now more) with the PBoC. $60b with central huijin (bank recap). and at least $50b in outstanding fx swaps between the PBoC and the banks (which have helped hold down reported reserve growth).