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In China, the money supply growth rate has been on the decline for three months straight. The Chinese regime’s central bank announced its findings on Monday. It sparked speculation as to whether this is a positive or negative trend.
The decline in money supply growth rate means that more Chinese people are holding on to their cash - stocking it away in banks or investing it in real estate or other non-liquid assets. This is great for China’s inflation problem, but could present difficulties for industry and the business sector. When there is less cash flowing around in the economy, it is harder to borrow large sums of money that big businesses rely on for expansion and day-to-day operation.
[Guo Tianyong, Dir. of Central University of Finance and Economics]:
“It probably means the receding to some extent of investment and production by enterprises.”
The declining money supply growth rate is the direct result of China’s financial policy makers attempt to reign-in runaway inflation. Time will tell if they will be able to do this without quashing investment and production.