Aggregate financing of the Chinese real economy

17th July, 2015

As reported in the China Monetary Policy Report Quarter Four of 2010, the financial system in China is witnessing a changing landscape where the share of direct financing has grown remarkably, and the off-balance-sheet businesses of commercial banks has become an alternative to the lending business. 

Acknowledging the same, Hu Xiaolian (Deputy Governor of the People’s Bank of China) in her speech on the 24th of December, 2010 (see note 1 below for the link to the speech), introduced the Total Social Financing (or the All-System Financing Aggregates as known in the Central Banking Community of China) which is an indicator that measures the supply of funds to support the real economy where real economy means domestic non-financial enterprises and households (see note 2 below for the link that explains what real economy to the Chinese monetary authority means).

Several components make up the total social financing which include local currency loans, foreign currency loans, financing through bond issuance, share offerings, trust loans and entrusted loans. Although the People’s Bank of China (PBoC) publishes statistics on the all-system financing aggregates along with its various components on a monthly basis, the same has been provided retrospectively from 2002 by them and can be obtained from the National Bureau of Statistics of China.

An overview of the total social financing from 2002 to 2013 suggest that local currency loans continue to provide the maximum support to the real economy (with an average support of approximately 69 per cent).  

Source – National Bureau Statistics of China

However, it appears that there are other forms of financing that have sharply picked up in the recent years to support the real economy. For instance, on the one hand we see in the graph below that although local currency loans (RMB) loans steal the limelight in supporting the real economy, there is a sharp downturn in its share towards total financing. Moreover, the linear trend of the share of financing through foreign currency loans and through equity financing have remained more or less stable. However, on the other hand, we see that there is an upward linear trend observed for the share of financing through credit loans, corporate bonds, entrusted loans and undiscounted bankers’ acceptance. 

Source – National Bureau Statistics of China



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