China’s money supply had a net increase of 11 percent from 2013 to 2014, an increase that is significantly higher than the country’s economic growth. In 2014 it reached 122.84 trillion yuan (US$18.05 trillion), compared with 110.7 trillion (US$17.71 trillion) by the end of 2013. Of China’s 12.14 trillion added currency (US$1.94 trillion) in 2014, 9.78 trillion yuan (US$1.56 trillion), over 80 percent, was used for creating new loans. Not only was it 890 billion (US$142 billion) higher than that in 2013, but also broke the 2009 record of 9.59 trillion (US$1.53 trillion) by 190 billion (US$30 billion) more.
So much new money was printed. Where did it all go? The majority of the loans did not flow into the economy, but went into non-production areas, namely the financial market.
Massive Money Printing
The Research Center for China Market Value Management Ltd. brought two pieces of good news about the Chinese economy in its 2014 annual report on A-shares stock market value, published on January 24. Firstly, the total market value of A-shares reached 37.11 trillion yuan (US$5.94 trillion) last year, exceeding Japan to become the world’s second largest stock market, next to U.S. Secondly, China’s securitization ratio reached 58.3 percent (derived from 37.11 trillion yuan of A-shares divided by a total GDP of 63.65 trillion yuan), far more than the 40.1 percent in 2013, bringing China one step closer to the securitization ratio of the U.S.