China’s low interest rates are failing to spur lending in the economy – ‘liquidity trap’


Eamonn Sheridan

Eamonn Sheridan

Saturday, 13/08/2022 | 05:05 GMT-0

13/08/2022 | 05:05 GMT-0

Data from China on Friday on financing. New loans slumped, even as money supply (M2 +11%) grew strongly – i.e. plenty of cash sloshing about but its not in demand:

The chief China economist at Pantheon Macroeconomics says such a combination of data is a “classic sign of a liquidity trap” .

  • “Liquidity is ample, but no one wants it.”

The remarks come via a Bloomberg piece (gated, but an ungated one can be found here):

Risk of money being directed into markets could very well translate to a bullish input for Chinese stocks.

ps. Coming up on Monday is a maturing MLF. A majority of analysts expect the PBOC to not fully roll the amount maturing (that is, a net withdrawal of cash). On the 20th we get the monthly loan prime rate setting from the PBOC (preview here).

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