China – The magnificent mystery of the missing M2
• Part of the sharp decline in M2 growth is due to a revision in accounting rules
• We calculate M2 would have risen 17.4% y/y in February without the revision (against 15.7% officially)
• The 2011 M2 growth target should be revised to 14.5% from 16%, based on the revision
Why did China’s M2 growth slow so sharply over the first two months of 2011?
According to the latest data, M2 rose 15.7% y/y in February (against a consensus
forecast of 17%), slowing from 17.2% in January and an average of 20.8% in 2010 (see
Chart 1). Given that loans grew by only CNY 535.6bn in February, following a sizeable
CNY 1.04trn increase in January, why has M2 growth decelerated so much, so quickly?