China’s Monetary Conundrum
Weak demand is dragging down China’s economic growth. And, because the problem lies primarily in financial constraints on the real economy – not an overall cash shortage – the slowdown will be very difficult to reverse.
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SHANGHAI – Weak demand is dragging down China’s economic growth. The real problem isn’t a shortage of money: the broad money supply (M2) now exceeds CN¥155 trillion ($25 trillion), or 200% of GDP, and continues to grow by 12-13% annually. Rather, the current slowdown reflects financial constraints on the real economy – a problem that will be difficult to reverse in the near future.