BEIJING — Since China introduced a floating exchange rate on July 21, 2005, the Chinese yuan has consistently risen in value against the United States dollar, from a low of 8.28 yuan to the dollar in July 2005 to a high of 6.06 in January of this year. But the appreciation of the yuan has failed to convince ordinary Chinese people that their money buys more; on the contrary, they feel it’s worth less.
For the last nine years, while the yuan has appreciated in relation to other currencies, it has steadily lost value at home. Many attribute this to excess printing of currency by the central bank. The excess of China’s money supply (known as “M2”) at the end of 2013 totaled 110.65 trillion yuan ($17.77 trillion), four times greater than the figure 10 years earlier, when it stood at 22.1 trillion yuan ($3.55 trillion, at today’s rate).
The basic tenets of monetary policy say that for every 1 yuan rise in the value of the economy, the central bank should add 1 yuan in currency. Any supply of currency above that rate is excess. Today, the value of Chinese currency in circulation compared with gross domestic product is at a ratio close to 2:1 (in 2013, China’s G.D.P. amounted to 56.88 trillion yuan, or $9.31 trillion).
Because China’s economic growth relies chiefly on investment, it requires major injections of capital. As the government economist Wu Xiaoling put it, “In the past 30 years, we have used excessive money supply to rapidly advance our economy.”
In most economies, that would lead to rampant inflation, but if we look at the rise in China’s Consumer Price Index over the last two years, it’s usually been in the range of 2 to 3 percent, and only occasionally above 3 percent. During the last decade, there have been only two occasions when prices rose sharply: in 2008, when the increase topped 8 percent, and in 2011, when it peaked at about 6 percent. Why has large-scale monetary inflation failed to trigger price inflation?
From official quarters, we hear denials that China’s money supply is inflationary. Sheng Songcheng, the head of the central bank’s statistics and analysis department, said in January that the money supply was large because the savings rate and the ratio of indirect financial investment (that is, funding in the form of bank loans) were high. China has one of the highest household savings rates in the world, surging recently to 50 percent of disposable income (although it is only a minority of households driving the trend).
Economists differ as to what this all means, but one professor of literature has coined a term for it: “the economics of corrupt officialdom.” Corrupt officials, he argues, have a lot to do with the absence of price inflation.
Corrupt officials generally do not spend the huge sums they acquire from kickbacks, and are loath to deposit their money in banks for fear it will be discovered. So they hide their money instead. The professor estimates that as much as 50 percent of the surplus money supply may have been taken out of circulation for this reason.
China’s Internet commentators have seized on this phenomenon, hailing dishonest officials’ creative ways of hiding money as performance art.
For example, Xie Mingzhong, a former Communist Party secretary of Wenchang in Hainan Province, was dismissed after he allegedly concealed more than 25 million yuan in safe deposit boxes.
Yan Dabin, the former chief of the state communications bureau in Wushan County, Chongqing, hid cardboard boxes containing 9.39 million yuan in the bathroom of his new apartment, where they were discovered after a water leak.
Xu Qiyao, a former chief of the construction department of Jiangsu Province, accepted some 20 million yuan in bribes. Parts of that sum were wrapped in layers of plastic and hidden in a hollow tree trunk, beneath an ash heap, in a rice field and inside a latrine.
Li Guowei, the former chief of the highway bureau in Ganzhou, Jiangxi Province, buried a box stuffed with 2.8 million yuan in a garbage heap next to a brother’s house. “I was an unlucky dog when I got picked out,” he said.
Luo Yaoxing, the former chief of the immunization planning office of the disease control center of Guangdong Province, rented a luxury apartment to store his booty. He wrapped the notes tightly inside black plastic bags. Despite protecting his stash with waterproof paper and drying agents, 1.2 million yuan still got moldy.
The list goes on. Despite a wave of prosecutions over the past decade, there is little reason to believe that much has changed. In December, a former deputy director of the Hohhot Railway Bureau in Inner Mongolia, Ma Junfei, was given a suspended death sentence for accepting bribes and concealing the sources of his immense fortune. His annual salary would have been only about 120,000 yuan ($19,300), but his two houses were stuffed with cash and gold with a value of more than 130 million yuan ($21.48 million). During his trial, Ma Junfei admitted that concealing the money he had received in bribes was a colossal headache.
The professor’s estimate that half of the money supply surplus has been salted away by corrupt officials is a calculation based more on poetic license than empirical evidence, but I have no doubt that the total of stolen cash is big enough to play a role in curbing price inflation at a time of monetary expansion. Like most Chinese, I am sure that those officials who have been brought to justice represent the tip of an iceberg of kickbacks and bribes.
Of course, “the economics of corrupt officialdom” can’t stop prices from rising. That is one change ordinary Chinese have become very conscious of in recent years: Everything is getting more expensive — only the money gets cheaper.
Yu Hua is the author of “Boy in the Twilight: Stories of the Hidden China.” This essay was translated by Allan H. Barr from the Chinese.