Value of M2 broad money supply in China 2011-2023

At the end of 2023, the M2 broad money supply in China amounted to over 292 trillion yuan. Broad money supply had been growing consistently over the years. However, the overall growth rate of all money supply had been decreasing.

Money is not money?

In economic theory, money supply describes the volume of currency that exists in a country. Even though it might sound counterintuitive, there are different types of money. For example, cash, saving deposits, or other liquid assets are then divided into tiers from M1 to M3. Thereby, M2 money or broad money comprised of cash and assets that can easily be converted into cash. The main application of M2 money is making payments and economic transactions. For mainstream economists, the volume of M1 and M2 money can indicate inflation.

The mysterious case of money expansion in China

The post-pandemic economic recovery has not materialized as the growth in the M2 money supply would have indicated in China. As a consequence of global anti-COVID-19 measures, China’s economic growth fell far below the country’s development targets. After another underperforming year in 2022, the M2 money supply grew by almost 13 percent in the first quarter of 2023, but the GDP increased only by 4.5 percent, which indicated that the money does not reach the real economy. Therefore, the Chinese economy could be in a liquidity trap or a balance sheet recession.