Summary
The current economic situation is facing the impact of internal and external factors. The rebound of the epidemic, the decline of real estate, imported inflation and the adjustment of international geopolitical pattern have led to the sharp contraction of China's supply and demand, the expectation remains depressed, and the trend of micro entities' difficult operation, short-term behavior and risk avoidance has intensified. The central and local governments have introduced a series of reform, opening-up and relief measures. At present, the main reason is that the development of infrastructure has produced obvious results, while other policies still need some time to take effect.
In March, the new social financing and RMB loans significantly exceeded market expectations, with an increase of 1.27 trillion yuan and 400 billion yuan respectively year-on-year, significantly improved from the downturn in February. However, the improvement of the total amount is mainly due to the policy force rather than the rising demand of market players. At the same time, the financial data structure has not improved. At this time, the interest rate spread of China US 10-year Treasury bonds is upside down, and the interest rate of China's treasury bonds is lower than that of the United States for the first time since 2010, reflecting the deviation between China US monetary policy and fundamentals. The market is worried that the upside down of interest rate difference between China and the United States will increase the pressure of RMB exchange rate depreciation, and then restrict China's monetary policy. We believe that in the face of the internal and external situation, we should not exaggerate the negative impact of the upside down interest rate difference between China and the United States on the RMB exchange rate. Monetary policy will still "focus on me" to hedge against the downward pressure of the economy, and there is still room for reducing reserve requirements and interest rates.
In January and March, the total amount of credit and social financing exceeded expectations, mainly reflecting the strength of policies rather than the rising demand of market players. First, local governments have accelerated the issuance of special bonds and financial expenditure. In March, government bonds increased by 705.2 billion yuan, an increase of 392.1 billion yuan year-on-year; Fiscal deposits decreased by 842.5 billion yuan, an increase of 357.1 billion yuan year-on-year. Second, commercial banks have short loan impulse to meet regulatory requirements. In March, the new loans to enterprises (Institutions) increased by 880 billion yuan year-on-year, mainly contributed by short-term loans and bill financing, with an increase of 434.1 billion yuan and 471.2 billion yuan year-on-year respectively.
The financial data structure in February and March was poor, which was consistent with the recent economic downturn. First, real estate sales continued to decline, and residents' medium and long-term loans increased less year-on-year. In March, new residential loans decreased by 394 billion yuan year-on-year, of which short-term and medium and long-term loans decreased by 139.4 billion yuan and 250.4 billion yuan respectively year-on-year. On March 30, the transaction area of commercial housing in large and medium-sized cities decreased by 47.3% year-on-year. Second, the short-term characteristics of enterprise loans are obvious, and the proportion of medium and long-term loans is low. In March, new loans to enterprises (Institutions) increased by 880 billion yuan year-on-year, of which medium and long-term loans increased by only 14.8 billion yuan year-on-year. The growth of corporate loans is mainly driven by policies, rather than the endogenous demand of medium and long-term capital expenditure. Third, the degree of currency "activation" is low, and the m1-m2 negative scissors gap is widening. In March, M1 increased by 4.7% year-on-year, unchanged from the previous month; M2 increased by 9.7% year-on-year, an increase of 0.5 percentage points over the previous month. The low growth of M1 is due to the downturn of the real estate market and enterprises' willingness to invest, and the increase of M2 growth is due to credit expansion, foreign exchange settlement, accelerated fiscal expenditure, etc.
3. The direct reason for the upside down of China US interest rate spread is the deviation of China US monetary policy, and the fundamental reason is the deviation of China US economic fundamentals. In order to curb inflation, the Federal Reserve can only accelerate the tightening of monetary policy, raise interest rates and shrink the table simultaneously, and the yield of US bonds rose rapidly. At present, China's economic development is facing the triple pressure of shrinking demand, supply shock and weakening expectation. Recently, it has been impacted by the rebound of the epidemic, the conflict between Russia and Ukraine and other unexpected factors outside China, and the new downward pressure has further increased. Since the middle and late March, the yield of China's 10-year Treasury bond has weakened again.
4. The upside down of interest rate difference between China and the United States will reduce the attractiveness of Chinese bonds and other financial assets and intensify the short-term cross-border capital outflow, thus forming depreciation pressure on the RMB exchange rate. However, we should not exaggerate its negative impact on the RMB exchange rate. First, the determinant of exchange rate is real interest rate spread rather than nominal interest rate spread. At present, the interest rate spread between China and the United States is upside down, mainly because the nominal interest rate is pushed up by high inflation in the United States, and the real interest rate is still negative; China's inflation is relatively low, and the real interest rate difference between China and the United States has not been inverted. Second, even if the short-term cross-border capital outflow increases, the trade surplus and foreign direct investment will still bring us dollar inflow.
5. If the inversion of interest rate difference between China and the United States continues to intensify, it will naturally restrict China's monetary policy. However, at present, there is still a certain buffer space for the real interest rate difference between China and the United States, and China's exports and foreign direct investment are still relatively prosperous, which have greatly alleviated the external pressure on monetary policy. In the short term, China's monetary policy will continue to "focus on me", and there is still room for reducing reserve requirements and interest rates.
Risk tip: the downward pressure on the economy exceeded expectations, the monetary policy exceeded expectations, and the monetary policy tightening of the Federal Reserve exceeded expectations
