It appears you are correct. I am wondering if that also is being used to demonstrate (whether accurately or not), that China's markets are good to invest in over time.
Key Points
It seems likely that the M1 money supply spike in China in January 2025 is due to a definitional change by the People's Bank of China (PBOC), not a sudden economic increase.
The evidence leans toward this spike reflecting the inclusion of new components like personal demand deposits and funds from non-bank payment institutions, effective from January 2025.
Research suggests this revision aims to better measure liquidity, showing stable or slightly improving economic activity, especially during the Chinese New Year.
Background on M1 Money Supply
M1 money supply includes the most liquid forms of money, such as cash and checking accounts, which are readily available for spending. A spike in M1 typically indicates increased liquidity, potentially boosting economic activity.
Reason for the Spike
The spike in January 2025 appears to be largely a statistical artifact. The PBOC revised the M1 definition to include residential demand deposits and customer reserve funds held by non-bank payment institutions, starting in January 2025. This change broadened the scope, leading to a significant jump in measured M1 compared to previous months under the old definition.
Economic Implications
Under the new definition, M1 grew by 0.4% year-on-year in January 2025, an improvement from -1.4% in December 2024, likely driven by seasonal demand during the Chinese New Year. This suggests stable or slightly improving liquidity, which could support consumption. However, the spike itself is not a genuine increase in money supply but a reclassification, so its economic impact needs careful interpretation alongside other indicators.
An unexpected detail is that this revision aligns M1 with practices in other major economies, potentially offering a clearer picture of China's liquidity, which could influence future monetary policy and economic analysis.
Survey Note: Detailed Analysis of China's M1 Money Supply Spike in January 2025
This note provides a comprehensive analysis of the recent spike in China's M1 money supply, focusing on the reasons behind it and its implications for the economy. The analysis is based on recent data and official announcements, aiming to offer a detailed understanding for readers interested in economic trends.
Introduction to M1 Money Supply
M1 money supply is a critical economic indicator, encompassing the most liquid forms of money, including currency in circulation and demand deposits. In China, it traditionally included cash (M0) and corporate demand deposits, reflecting the immediate payment capacity and liquidity available for short-term economic activities. A spike in M1 typically signals increased liquidity, which can stimulate consumption and investment, but it requires careful interpretation, especially when influenced by definitional changes.
Observed Spike in January 2025
Recent data indicates a significant increase in China's M1 money supply from December 2024 to January 2025, with reports suggesting a jump from approximately 67.1 trillion CNY to 112.4 trillion CNY, representing a 68% month-over-month increase. However, this figure raised concerns due to its magnitude, prompting a deeper investigation into the underlying causes.
Reason for the Spike: Definitional Revision by the PBOC
The primary reason for this spike is a revision in the statistical scope of M1 by the People's Bank of China (PBOC), effective from January 2025. According to an announcement on December 1, 2024, by China Daily, the PBOC expanded M1 to include:
Currencies in circulation (M0)
Corporate demand deposits
Residential demand deposits
Customer reserve funds held by non-bank payment institutions
This revision reflects changes in financial product categories due to rapid advancements in payment technologies, such as mobile payments and digital wallets. Previously, personal demand deposits were excluded from M1 because they were less liquid, but with modern payment systems, they now support instant transfers and payments, aligning their liquidity with corporate demand deposits. This inclusion significantly broadened the M1 measure, leading to the observed spike in January 2025 data.
The first reading under the new definition was released in early February 2025, covering January 2025, and included revised figures for previous periods to ensure consistency. For instance, China Daily noted that revised M1 outstanding figures and growth rates from January 2024 would also be provided, facilitating historical comparisons.
Analysis of Growth Rates Under the New Definition
Under the revised definition, M1 growth turned positive at 0.4% year-on-year (yoy) in January 2025, marking an improvement from -1.4% yoy in December 2024, as reported by Minichart. This growth outperformed consensus expectations of -0.5% yoy, suggesting stronger transactional demand, particularly during the Chinese New Year festivities. The following table summarizes key monetary indicators:
Indicator
Jan 2025 (yoy % change)
Consensus
Dec 2024
Nov 2024
M1 Money Supply
0.4
-0.5
-1.4
-3.7
This positive growth indicates that, under the new measure, the economy's liquidity is stable or slightly improving, potentially supporting consumption and economic activity during the festive season.
Economic Implications of the Revision
The inclusion of personal demand deposits and funds from non-bank payment institutions in M1 provides a more comprehensive view of liquid money available in the economy. This is particularly relevant in China, where digital payment platforms like Alipay and WeChat Pay have become dominant, holding significant customer reserves. The revision aligns M1 with practices in other major economies, offering a clearer picture of liquidity dynamics.
However, the spike itself is largely a statistical artifact, not a genuine increase in money supply from monetary policy actions. The actual economic impact depends on how these new components behave. For instance, personal demand deposits reflect individual spending power, which could indicate consumer confidence and potential consumption growth. The Global Times article on December 2, 2024, Global Times, highlighted that Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, suggested M1 growth may further recover following the revision, implying potential positive effects on economic activity.
The 0.4% yoy growth in January 2025, driven by seasonal demand, suggests that liquidity conditions are supportive, especially during high-consumption periods like the Chinese New Year. However, comparisons with previous years need caution, as the new definition may inflate growth rates compared to the old measure. For example, the -1.4% yoy in December 2024 was under the old definition, while January 2025's 0.4% is under the new, making direct year-over-year comparisons less straightforward without revised historical data.
Broader Economic Context
China's economy has been facing challenges, including slowing productivity growth and a declining workforce, with potential growth projected to slow to around 3.8% between 2025-30 without major reforms, according to IMF Working Papers. The M1 revision could help policymakers better monitor liquidity, especially as the economy transitions toward more consumption-based growth. The positive M1 growth in January 2025, even if partly seasonal, could signal early signs of recovery in liquidity, supporting consumption and investment.
An unexpected detail is that this revision may influence future monetary policy, as the PBOC aims to strengthen monitoring of M2 and overall social liquidity, as mentioned by Governor Pan Gongsheng in China Daily. This could lead to more targeted interventions to manage liquidity and support economic stability, especially in light of global economic pressures and potential trade tensions.
Conclusion
The spike in China's M1 money supply in January 2025 is primarily due to the PBOC's definitional revision, including new components like personal demand deposits and non-bank payment institution funds. This change aims to better reflect the economy's liquidity, showing a 0.4% yoy growth under the new measure, suggesting stable or slightly improving conditions, particularly during the Chinese New Year. While the spike is not a genuine economic increase, it provides a more accurate measure of liquid money, potentially supporting consumption and economic activity, though comparisons with past data require caution due to the definitional shift.
Key Citations
China broadens M1 money supply measure
Chinadaily.com.cn
China’s January Money Supply M1 Growth Turns Positive Amid Seasonal Demand Minichart
China Money Supply M1 TradingEconomics
China Money Supply M1 1997 – 2024 CEIC Data
China M1 money supply 2023 Statista
China’s central bank revises statistical scope of M1 Global Times
China’s Path to Sustainable and Balanced Growth IMF Working Papers