Time to change monetary policy

China's social financing volume has increased rapidly in the past 10 months, but it has not been transferred to the real economy for several reasons. Factors such as high financing costs and rapid currency appreciation have made banks and businesses lose confidence in the real economy and thus obstructed the circulation of money. Also, rampant arbitrage has resulted in over-estimation of the social financing volume and thus the growth rate.

Moreover, the "net increase" in the flow of money into the real economy through social financing has also been overestimated, because some enterprises and local governments use it to get additional loans to repay old loans.

Premier Li Keqiang has said the stock of money and credit has been unleashed and activated in response to the recent decline in circulation of money, which can be attributed to investors' and consumers' lack of confidence in the real economy.