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

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:

china new loans 13 August 2022

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):

  • The mismatch between liquidityLiquidityLiquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is e…Read this Term and bank lending is also raising financial risks as market interest rates drop well below policy rates set by the central bank.
  • “Liquidity is piling up in the interbank market and there’s even a risk of money being directed out of the real economy and into markets,” said Ming Ming, chief economist at Citic Securities Co.