China has been “printing money” at a far faster rate than any of the major developed nations since 2008 to keep its money supply on pace with its high economic growth targets and its ambitious infrastructure expansion projects.
Every major economy has been printing money to help offset the liquidity crunch caused by the global financial crisis of 2008. They include the various stages of “quantitative easing” implemented by the US Federal Reserve and the “unlimited” bond buying program unveiled by the European Central Bank in a bid to shore up the economies of member nations staggering from sovereign debt crises. Earlier this week Japan’s new leader opened the floodgates to new yen with a program to buy up government bonds and by raising the inflation target to 2% in a bid to end two decades of deflation.
In 2012 over 26 trillion yuan ($4.1 tril.) was added to the global money supply. Over half of that new money came from China.
Beijing’s yuan-printing binge began in 2008 when it added 7.1 trillion yuan ($1.13 tril.) to its money supply, surpassing the $815 bil. (5.08 tril. yuan) printed by the US and the $915 bil. (5.7 tril. yuan) by Europe.
In 2009 China added a whopping 13.5 trillion yuan ($2.1 trillion), the equivalent of about 35% of its then GDP, even as the US, Japan and the Euro zone slowed their monetary growth. Since then China has been adding 12 trillion yuan ($1.9 trillion) a year to the money supply.
In relation to its GDP, China has been by far the biggest producer of surplus money. In 2012 its money supply was 1.88 times GDP, much higher than the global average of 1.26 times GDP, according to the World Bank.
But the surplus money ranking by country has China in 10th place, far behind first-place Luxembourg at 4.89 times GDP. The top 25 also includes Portugal, Italy, Greece, Spain, Germany, Ireland, Austria and France which have ratios of around 1.50 to 2.0 times GDP. Japan has one of the world’s highest at 2.40, but not nearly as high as Hong Kong at a whopping 3.28.
By contrast the US has one of the world’s lowest ratios at only 0.87. Other advanced nations with relatively low ratios include S. Korea at 0.78, Denmark at 0.74, Sweden at 0.87, Finland at 1.18 and Canada at 1.26.
The ratio grows when a country continues to grow its money supply faster than its per-capita GDP. Fortunately for China, its per-capita GDP has been growing rapidly enough, and its foreign currency reserves are big enough, to sustain its money supply growth with low risk of runaway inflation.
