Tuesday February 17th, 2015
When the People’s Bank of China (PBOC) released January’s new loans figures last Friday, many were surprised by the sharp fall in M2 growth to 10.8%, down from 12.2% in December, and most reports either ignored it, or failed to explain convincingly what caused it.
Yet one diligent researcher on twitter (@timdayipper) has been tracking M2 growth for the past few years, and recently noticed an anomaly. The final M2 growth figure for December was actually 11%, not 12.2% as stated in the PBOC’s preliminary report.
In other words, the PBOC preliminary reports were masking steeper year on year falls in China’s broad money towards the end of 2014, but since the media were only reporting the preliminary figures, a less bleak picture was painted in the press.
In fact as his graph shows, since September 2014 the PBOC’s preliminary figure has overstated the actual final figures by over a percentage point, and yet no one in the financial media noticed, or checked by calculating the actual M2 growth figure themselves.
But surely the final figures are bound to differ slightly from the initial preliminary figures?
Analysis from 2013 by chiecon confirms there is usually a small variation, but at most by 0.05%, and can be both negative or positive. This involved checking the original preliminary reports which can be found here (Chinese), verses the final data which can be found here (Chinese). Original M2 growth amounts mentioned in the preliminary reports were also checked verses the final amounts shown in the data section, but there were no significant changes.
Oct + 0.55%
Why would the PBOC be reporting initial M2 growth figures which turn out to be higher than actual growth? Was it deliberate to mask the 2014 Q4 fall in China’s broad money supply, and then reset from January onwards?
One counter argument could be that the M2 growth figures are accurate, and that the previously reported total M2 amounts are no longer accurate, perhaps revised internally at the PBOC, but not refreshed on their site. Only the PBOC can confirm which of their data is inaccurate.
Regardless the result is the same, and the media, and financial information service providers are still reporting the M2 growth figures straight from PBOC preliminary reports. This results in banks and other financial institutions which feed this data into their models, producing inaccurate forecasts. This was apparent when market forecasts for December and January M2 growth were still in the 12% range.
For example the graph below shows Bloomberg tracking M2 growth plotting data from the preliminary reports, rather than calculating from final figures:
As of today’s publish date, the following reports are quoting an inconsistent M2 growth rate of 12.2% for December, and drawing MoM comparisons with January’s rate:-
Plus all the reports and analysis from October through December…
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Included in the popular Sinocism newsletter, February 17th 2015.