Increase in government deposit

The central government's crackdown on extravagance and graft since last year has to some extent influenced the currency's declining rate of circulation. Although the government spent less money in the same period, financial allocation was unchanged, so there is a lot of cash left in the government's current deposit account, which in fact is not a good thing, said an editorial in Beijing News (excerpts below).

The deposits of nonprofit institutions in May enjoyed a 20.3 percent year-on-year growth, reaching 1.43 billion yuan ($232.8 million). This growth rate is much higher than the increased rate of the money supply in China.

Moreover, it is not normal to have large amounts of financial fund deposits in the banking system. In practice, applying a proactive fiscal policy requires effective use of financial funds, which not only relates to the improvement of fiscal management, but also refers to the rate of circulation.

One main reason for the change is State-owned enterprises' investment mechanisms and their financial funding. When the market is rising, the huge profits made by SOEs are mainly used in investments that accelerates the rate, but when the market is depressed, the fat profits becomes deposits and lowers it. The current specific scale and reason should be analyzed further.

In order to resolve this issue, the government should both improve financial funds' management and hasten reform of the fiscal system. Increase the amount collected from SOEs' profits. Also, improve the transparency of public funds, like reconsidering the excess funds in the fiscal budget next year, or transfer some funds to infrastructure investments and social construction.