China Macro: Liquidity Trap Signals Persist Despite Credit Bump

People's Bank of China (PBOC) data released Thursday underscores a persistent structural challenge for the world's second-largest economy: a liquidity trap where credit supply fails to stimulate velocity.

The Numbers

• New Loans: December new Yuan loans hit 910 billion CNY, contributing to a full-year total of 16.27 trillion CNY.
• M2 vs M1: The defining metric continues to be the “scissors difference.” M2 (broad money) grew at 8.5%, while M1 (narrow money, indicating corporate cash flow and spending intent) lagged significantly at 3.8%.
• The Gap: The spread between M2 and M1 widened to 4.7% from 3.1% in the previous month.

Analysis: Pushing on a String?

The widening divergence between M2 and M1 suggests that while the central bank is pumping liquidity into the banking system, households and corporations are hoarding cash in time deposits rather than spending or investing.

• AUD/USD Impact: The Australian Dollar, a liquid proxy for China's economic health, showed a muted reaction. The data confirms that China's recovery remains fragile and dependent on government bond issuance (up 17.1%) rather than organic private sector demand.

Conclusion: Until the M1 growth rate accelerates—signaling a return of business confidence and capital turnover—stimulus measures are likely to have a diminishing marginal return on real GDP growth and commodity demand.