Funds "Come Alive," the economy "Warms Up"

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■ Liu Qi

Recently, the People’s Bank of China released its February financial statistics report, showing that at the end of February, the broad money supply (M2) was 349.22 trillion yuan, up 9.0% year-on-year, with the growth rate remaining steady from January; the narrow money supply (M1) was 115.93 trillion yuan, up 5.9% year-on-year, with the growth rate increasing by 1 percentage point compared to January. The “scissors difference” between M2 and M1 narrowed to 3.1%, down 1.6 percentage points from the end of last year.

This seemingly small change sends positive signals about the economy—narrowing the “scissors difference” usually indicates more funds shifting from fixed deposits to demand deposits. The increase in “liquid money” reflects a warming in market entities’ investment and consumption willingness, suggesting that the endogenous momentum of economic activity is gathering.

From M1, which includes currency in circulation (M0), individual and corporate demand deposits, and reserves of non-bank payment institutions, all highly liquid funds ready for payment transactions, a rise indicates that enterprises and residents are holding more demand deposits. This often signals optimistic expectations for future economic activity and readiness to invest or consume at any time. Conversely, when market confidence is low, funds tend to shift from demand deposits to fixed deposits for risk aversion and preservation of value. Therefore, the rebound in M1 growth can be seen as a monetary reflection of improved risk appetite among market participants.

The February rebound in M1 growth strongly correlates with the hot consumption market during the Spring Festival period. The 2026 Spring Festival was the “longest holiday ever,” with a nine-day break, combined with policies like old-for-new exchanges and prize-winning invoices, effectively stimulating consumption potential. According to data from the Ministry of Culture and Tourism, during the nine-day holiday, domestic travel reached 596 million trips, with total domestic travel expenditure of 803.483 billion yuan, both setting records. The Ministry of Commerce data shows that the average daily sales of key retail and catering enterprises increased by 5.7% compared to the 2025 Spring Festival holiday, with the growth rate 1.6 percentage points higher than last year. The active consumption scene naturally increased payment and settlement demands, boosting demand for demand deposits.

Enterprises, in response to post-holiday resumption of work and market recovery, tend to hold more demand deposits for liquidity, further strengthening M1’s growth momentum. Meanwhile, confidence in market development is also rising. In February, the manufacturing and construction industry activity expectation indices increased by 0.6 and 1.1 points respectively from January, indicating improved outlooks for future markets and industries, providing a microfoundation for the M1 growth rebound.

On a macro level, the rebound in M1 also confirms the effectiveness of coordinated monetary and fiscal policies. Early in 2026, the People’s Bank of China and the Ministry of Finance announced a series of policy measures aimed at expanding domestic demand. The synergistic effects of fiscal and monetary policies are gradually translating into tangible benefits for market entities, improving their cash flow and expectations stability.

Of course, the rise in M1 should be viewed rationally. On one hand, the extended nine-day Spring Festival holiday, all falling in mid to late February, causes seasonal fluctuations in fund holding behaviors—some fixed deposits may have been converted into demand deposits before the holiday for consumption, and have not fully flowed back after. On the other hand, M1 growth remains relatively low, with room for further activation of funds.

I believe that increasing the liquidity of funds requires not only deepening macro policy coordination but also strengthening micro-level confidence. While maintaining the synergy of proactive fiscal policies and moderately easing monetary policies, efforts should focus on stabilizing the real estate market, improving corporate profit expectations, and increasing residents’ income and social security to enhance consumption capacity and willingness, thereby promoting sustained and healthy economic growth in a virtuous cycle.