December Financial Data: Why is M1 Continuing to Rise?

Core Viewpoint

In December 2024, the M1 growth rate was -1.4%, compared to -3.7% previously, exceeding market expectations (Wind: -3.7%) and closer to our expectation of -2.6%. The increase in M1 in December is related to the Spring Festival misalignment effect and the allocation and use of fiscal funds. Since the Spring Festival in 2025 falls in a different month than in 2024, companies concentrated on issuing wages and bonuses before the Spring Festival, causing significant seasonal disturbances to the year-on-year base of M1, making the Spring Festival misalignment effect evident. On the other hand, we indicated in previous reports that the core logic behind the rebound in M1 data is that the allocation and use of fiscal funds have begun to be reflected in M1 data, leading to an upward turning point in M1 growth within the year, and this logic continues to be validated. Generally speaking, the issuance of government bonds drives social financing, the allocation phase drives M2, and the usage phase drives M1. The acceleration of special bond issuance in August this year led to a rebound in M1 growth by October, with the timing closely matching the end of last year, indicating that the current utilization efficiency of fiscal funds that have been issued but not yet used this year is relatively high.

In terms of monetary policy, looking ahead to 2025, various policies will form a policy synergy, and it is expected that monetary policy will maintain a loose stance, with the possibility of increasing the magnitude and frequency of reserve requirement ratio cuts, which may exceed 150 basis points in 2025; interest rate cuts will also continue to exert force, potentially balancing exchange rate conditions and stock market timing, with an expected magnitude exceeding 30 basis points. In the bond market, the short-term downward space is limited, and potential volatility risks in the bond market should be monitored.

Content Summary

In December, new credit increased by 990 billion yuan, still relatively weak

In December, new RMB loans increased by 990 billion yuan (close to our forecast of 1 trillion yuan and higher than the market expectation of 843 billion), a year-on-year decrease of 180 billion yuan, with a year-on-year growth rate of 7.6%, down from 7.7% previously. In the credit structure, both household and non-bank loans increased year-on-year, while corporate loans decreased year-on-year, with corporate loans being the core drag.

1) On the household side, in December, household loans increased by 350 billion yuan, a year-on-year increase of 127.9 billion yuan. Short-term household loans increased by 58.8 billion yuan (a year-on-year decrease of 17.1 billion yuan), while medium- to long-term household loans increased by 300 billion yuan (a year-on-year increase of 153.8 billion yuan). Both short-term and medium- to long-term household loans showed signs of recovery. The early arrival of the Spring Festival holiday has led to the early release of consumer demand in December, supporting short-term household loans. Since the Spring Festival in 2025 is at the end of January, one month earlier than in 2024, this will drive some of the pre-Spring Festival consumer demand to be released early in December, positively impacting short-term household loans. Medium- to long-term household loans are driven by improved real estate data. In our forecast report, we indicated that thanks to policies stabilizing confidence and strong expectations, coupled with year-end performance pushes from real estate companies, the transaction area of commercial housing and second-hand housing in 30 cities continued to warm up in December (in cities with available data), which is expected to positively impact medium- to long-term household loans, achieving a year-on-year increase, which has now been validated 2) On the corporate side, in December, loans to enterprises increased by 490 billion yuan, a year-on-year decrease of 401.6 billion yuan. Among them, short-term loans decreased by 20 billion yuan, a year-on-year decrease of 43.5 billion yuan, while medium- and long-term loans increased by 40 billion yuan, a year-on-year decrease of 821.2 billion yuan. Bill financing increased by 450 billion yuan, a year-on-year increase of approximately 300.3 billion yuan, making corporate loans the core drag on credit. We believe that the weak performance of medium- and long-term loans in December is still greatly influenced by local government debt restructuring. Affected by local government debt restructuring, some implicit debts of urban investment platforms have been replaced or repaid early, and new loans are the difference between newly issued loans and loans repaid during the period, which affects the scale of new loans for the month. However, from the perspective of marginal changes, the issuance progress of replacement bonds in December was below expectations, leading to a "technical" disturbance that has somewhat converged compared to November. In our forecast report, we pointed out that "the issuance progress of special refinancing bonds slowed down in December, with a total issuance of 1 trillion yuan for debt replacement by various provinces, a decrease from 1.16 trillion yuan in November, which is expected to alleviate the 'technical' disturbance to credit growth," which has currently been validated. Overall, the current policy transmission to corporate investment and production has a certain lag.

3) On the non-bank side, in December, non-bank loans increased by 56.9 billion yuan, a year-on-year increase of 47.5 billion yuan, turning positive after 6 months. In October 2024, the central bank established a stock repurchase and increase loan program, guiding 21 national financial institutions to provide loans to eligible listed companies and major shareholders for repurchasing and increasing shares of listed companies. Preliminary statistics show that the upper limit of repurchase and increase plans disclosed in the entire market in 2024 exceeds 250 billion yuan. We believe that the establishment of this tool is expected to provide positive support for non-bank loans.

In December, social financing increased by 2.9 trillion yuan, with loans being the main drag

In December, the scale of social financing increased by 2.9 trillion yuan (completely matching our forecast of 2.9 trillion yuan, higher than the market expectation of 2.1 trillion yuan), a year-on-year increase of 924.9 billion yuan, with a month-end growth rate of 8%, up from 7.8% previously. The largest positive contribution in the incremental structure came from government bonds and corporate bonds, while the main drag was loans, with other items showing little fluctuation compared to last year.

1) Supporting items: Government bonds and corporate bonds. In December, government bonds increased by 1.7612 trillion yuan, a year-on-year increase of 828.8 billion yuan, making it the largest contributing indicator in the incremental structure. We previously pointed out in our reports that the National People's Congress Standing Committee approved a new fiscal plan at the beginning of November this year, with an incremental special bond issuance of 2 trillion yuan for the year, supporting the social financing data for November and December. In December, corporate bonds decreased by 15.3 billion yuan, a year-on-year increase of 255.8 billion yuan, and with the decline in yields, the financing demand for corporate bonds has also slightly improved.

2) Dragging item: Renminbi loans. In December, the newly added Renminbi loans under the social financing measure increased by 840.7 billion yuan, a year-on-year decrease of 268.5 billion yuan; foreign currency loans decreased by 67.5 billion yuan, a year-on-year decrease of approximately 4 billion yuan, mainly due to the replacement of local government bonds or early repayment of existing debts 3) Other projects are basically stable: Entrusted loans decreased by 1.8 billion yuan, a year-on-year decrease of about 2.5 billion yuan; trust loans increased by 15.1 billion yuan, a year-on-year increase of about 19.6 billion yuan; undiscounted bank acceptance bills decreased by 133.1 billion yuan, a year-on-year decrease of 53.4 billion yuan; stock financing increased by 48.3 billion yuan, a year-on-year increase of about 2.5 billion yuan.

M2 Slightly Rebounds, M1 Continues to Rise, Attention to M1 Calibration Adjustment in 2025

1) At the end of December, the M2 growth rate was 7.3%, up from 7.1% previously. In terms of structure, both residents and enterprises increased year-on-year, while fiscal and non-bank sectors decreased year-on-year. Among them, non-bank deposits are the core drag, related to the self-discipline management initiative for non-bank interbank deposit rates released at the end of November 2024, which aims to guide the downward trend of interbank demand deposit rates, leading to a short-term squeeze on non-bank deposits, as reflected in the data.

In December, M2 rebounded in line with expectations given the low base in 2023. Specifically, in December, RMB deposits decreased by 1.4 trillion yuan year-on-year, a decrease of 1.5 trillion yuan compared to the previous year. Among them, household deposits increased by 2.2 trillion yuan, an increase of about 212 billion yuan year-on-year; non-financial enterprise deposits increased by 1.8 trillion yuan, an increase of about 1.5 trillion yuan year-on-year; fiscal deposits decreased by 160 million yuan, a decrease of about 750.4 billion yuan year-on-year; non-bank deposits decreased by 3.2 trillion yuan, a decrease of about 2.6 trillion yuan year-on-year.

2) The year-on-year growth rate of M1 in December was -1.4%, up from -3.7% previously, exceeding market expectations (Wind: -3.7%) and closer to our expectation of -2.6%. M1 includes cash in circulation and demand deposits of units. The rise in M1 in December is related to the misalignment effect of the Spring Festival and the allocation and use of fiscal funds.

On one hand, the rise in M1 has a seasonal effect, as enterprises concentrate on paying wages and bonuses before the Spring Festival. Due to the difference in the months of the Spring Festival in 2025 and 2024, the year-on-year base is significantly disturbed by seasonal factors, making the misalignment effect of the Spring Festival evident. On the other hand, we indicated in previous reports that the core logic of the rebound in M1 data is that the allocation and use of fiscal funds can now be reflected in M1 data, leading to an upward turning point in M1 growth rate within the year. Currently, this logic continues to be validated. Generally speaking, the issuance of government bonds stimulates social financing, the allocation phase stimulates M2, and the usage phase stimulates M1. This year, the issuance of special bonds accelerated in August, and by October, the M1 growth rate rebounded, with the timing matching closely with the end of last year, indicating that the current utilization efficiency of fiscal funds that have been issued but not yet used is relatively high.

**The future trend of M1 will still be influenced by the intensity of fiscal support and the strength of resident consumption recovery. It is expected that fiscal support will be sustainable, and the adjustment of M1 calibration by the central bank in 2025 will help smooth the impact of the January Spring Festival misalignment On December 1, 2024, the central bank announced that starting from January 2025, it will launch the newly revised M1 caliber (adding personal demand deposits and non-bank payment institution customer reserves). Our previous judgment that the M1 caliber would be adjusted at the beginning of 2025 has been realized. In January 2025, due to the impact of the Spring Festival's timing, the M1 growth rate may record a relatively low value for the year. After the adjustment, although M1 data will still decline, the downward range will be significantly narrowed, further weakening its impact on market sentiment.

3) At the end of December, the year-on-year growth rate of M0 was 13.0%, up from the previous value of 12.7%. The data remains relatively high. From the perspective of economic recovery, the economic improvement in third- and fourth-tier cities and rural areas is slightly weaker, leading to an increase in cash demand. Additionally, the return of migrant workers and the timing effect of the Spring Festival have also increased cash circulation.

It is expected that the monetary policy in 2025 will maintain "moderate easing," with vigilance against potential volatility risks in the bond market.

On January 14, the State Council Information Office held a series of press conferences on "The Achievements of China's High-Quality Economic Development." Xuan Changneng, Deputy Governor of the People's Bank of China, stated that in accordance with the central government's requirement to "implement a more proactive and effective macro policy," the People's Bank of China will implement a moderately easing monetary policy this year.

Looking ahead to 2025, various policies will form a policy synergy, and it is expected that the monetary policy will maintain a loose stance, with the possibility of increasing the magnitude and frequency of reserve requirement ratio cuts. It is expected that there may be a reserve requirement ratio cut exceeding 150 basis points in 2025; interest rate cuts will also continue to be implemented, possibly considering the exchange rate situation and stock market timing, with an expected magnitude exceeding 30 basis points.

In terms of the bond market, in January, the central bank announced that it would suspend open market treasury bond purchase operations starting in January 2025, and will resume them at an opportune time based on the supply and demand conditions of the treasury bond market. Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, also stated that "investing in treasury bonds is not without risks." The central bank intends to change the one-sided downward trend of market interest rates through various tools and expectations. Currently, the yield on 10-year treasury bonds is 1.61%, and the downward space in the short term is limited, so vigilance against potential volatility risks in the bond market is necessary.

Risk Warning

The probability of a second inflation in the United States is rising, the Federal Reserve's easing is hindered, and the upward movement of the U.S. dollar index and U.S. Treasury yields is causing disturbances to the RMB exchange rate, increasing the difficulty of monetary policy decision-making.

Author of this article: Li Chao from Zheshang Securities (SAC Certification No.: S1230520030002) team, source: [Li Chao Macro Research and Asset Allocation](https://mp.weixin.qq.com/s?__biz=MzI5OTg2MzcyNA==&mid=2247515245&idx=1&sn=b9d02179c08fb6761d95bdf18cf22ffd&chksm=edb1b82ef34535fe6394d46d086a4949b888958b464bed8c7a49f48416635d6a96e3927f2b6c&mpshare=1&scene=23&srcid=0115jTvupwxOSvYbJydWHI7d&sharer_shareinfo=f93bd2d3a5395e018953f92 3fa6cd4da&sharer_shareinfo_first=f93bd2d3a5395e018953f923fa6cd4da#rd), original title: "【Zhejiang Merchants Macro || Li Chao】December Financial Data: Why is M1 Continuing to Rise?"

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