China accounts for nearly half of world's new money supply

China accounts for nearly half of world's new money supply

China has seen its money supply surpass that of developed countries since 2009 and has emerged as the world's biggest "money printing machine."

In 2008, the country added 7.1 trillion yuan (US$1.13 trillion) to the currency market, while the United States added 5.08 trillion yuan (US$815 billion) and Europe 5.7 trillion yuan (US$915 billion).

In 2009, China added 13.5 trillion yuan (US$2.1 trillion), while the US, Japan and the eurozone significantly scaled back their supplies. China has been steadily adding 12 trillion yuan (US$1.9 trillion) each year since 2009.

Following the global financial crisis of 2008, major economies in the world have been "printing money." Examples include the quantitative easing measures adopted by the United States and the European Central Bank's "unlimited" bond-buying program. Most recently, Japan launched its own version of quantitative easing on Jan. 22 by raising its inflation target and announcing open-ended purchases of government bonds.

The amount of newly increased money supply peaked in 2012, totaling over 26 trillion yuan (US$4.1 trillion), with China accounting for nearly half of it.

China also saw record surplus money in 2012, with its money supply pegged at 1.88 times that of its GDP. The global average in 2011 was 126% of GDP.

A jump in China's consumer price index in December last year had further fueled concerns about the surplus supply of money printed by the central bank and its potential risks. Some analysts played down these concerns, saying that surplus money had become a universal phenomenon and that most of the countries experiencing it could boast a higher per capita income.

According to 2011 data from the World Bank, the global average for surplus ratio was 126%. China ranked number 10 in terms of the countries with the largest surplus ratio. Luxembourg has the highest ratio in the world at 489%. The top 25 also includes Portugal, Italy, Greece and Spain, as well as Germany.

If a country's per capita income fails to catch up with an increase in its money supply, the ratio will widen, a warning sign for a country's economy. The European debt crisis is highly correlated with the runaway printing of money by European countries and most importantly, an excessively high ratio of money supply to GDP.

Before a heavily indebted Portugal, Spain and Greece further slipped into the red in 2012, these country's ratios had surpassed 200% in 2011, among the highest in Europe. While countries including Ireland, Germany, Austria and France also have high ratios of 150%, the high per capita income in these countries has helped relieve a good deal of fiscal strain.

The United States, meanwhile, has one of the lowest ratios in the world. Though the US was largely responsible for the 2008 financial crisis, it has been able to prevent the ratio from increasing.