Core Viewpoint - The article discusses the significant improvement in M1 and M2 monetary aggregates in China, attributing this to the return of cross-border funds rather than traditional economic factors [3][10][39]. Group 1: Economic Context - M1 and M2 have maintained a high growth rate, with the M2-M1 spread continuing to narrow [3]. - Many institutions struggle to understand the substantial improvement in M1 and M2 due to their traditional economic perspectives [6][8][9]. Group 2: Cross-Border Fund Flows - China is characterized as an open economy, allowing for significant cross-border capital flows, which can lead to misunderstandings about domestic monetary conditions [11][12]. - The article explains that when interest rates are lowered in China while they are raised in the U.S., it can lead to capital outflows, impacting M1 and M2 negatively [16][19]. Group 3: Impact of Interest Rate Changes - The movement of deposits between banks in China and the U.S. is illustrated, showing how a decrease in Chinese interest rates can lead to a contraction in domestic bank balance sheets [21][23]. - The article emphasizes that the recent return of funds to China is linked to uncertainties created by U.S. policies and expectations of U.S. interest rate cuts [35][36]. Group 4: Market Reactions - The return of funds is expected to positively impact the A-share and Hong Kong markets, which have been under pressure due to real estate risks [52][54]. - The article suggests that the current market dynamics indicate that the return of capital will continue, potentially leading to significant market recoveries [55][58]. Group 5: Inflation and Economic Indicators - The article notes that the core CPI is gradually rising, indicating a potential shift in inflation dynamics as capital returns to China [61][64]. - Traditional financial data may not accurately reflect the current economic conditions due to the unique nature of the capital flows [66].

Credit Growth - The total social financing (社融) stock growth rate rebounded to 8.9%, with new social financing of 4.2 trillion yuan in June, an increase of 900.8 billion yuan year-on-year[1] - New short-term loans for enterprises reached 1.16 trillion yuan, a year-on-year increase of 490 billion yuan, marking the highest level this year[2] - New medium- and long-term loans for enterprises amounted to 1.01 trillion yuan, up 40 billion yuan year-on-year, also a relative high for the year[2] Household Credit - New short-term loans for households were 262.1 billion yuan, an increase of 15 billion yuan year-on-year, driven by online consumption growth during the "618" shopping festival[3] - New medium- and long-term loans for households reached 335.3 billion yuan, up 15.1 billion yuan year-on-year, indicating a continued moderate recovery[3] Monetary Indicators - M1 growth rate increased by 2.3 percentage points to 4.6% month-on-month, supported by a low base from the previous year[4] - M2 growth rate rose by 0.4 percentage points to 8.3%, ending a previous downward trend, driven by credit recovery and seasonal effects[4] Structural Changes - The structure of social financing is shifting from "government bond support" to "real economy expansion," indicating a phase of credit improvement[1] - However, the current credit recovery is primarily driven by policy and technical factors rather than endogenous demand expansion, with ongoing weak industrial profits and manufacturing orders limiting sustainable credit growth[6]