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

<p>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:</p><p>The chief China economist at Pantheon Macroeconomics says such a combination of data is a “classic sign of a liquidity trap” .</p><ul><li>“Liquidity is ample, but no one wants it.”</li></ul><p>The remarks come via a Bloomberg piece (gated, but an ungated one <a target=“_blank“ href=““ target=“_blank“ rel=“nofollow“>can be found here</a>):</p><ul><li>The mismatch between <a target=“_blank“ href=“″ target=“_blank“ id=“633aaf0b-b4a1-40c5-8fbe-bf158af520a1_3″ class=“terms__main-term“>liquidity</a> and bank lending is also raising financial risks as market interest rates drop well below policy rates set by the central bank.</li><li>“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.</li></ul><p>–</p><p>Risk of money being directed into markets could very well translate to a bullish input for Chinese stocks. </p><p>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 (<a target=“_blank“ href=““ target=“_blank“>preview here</a>).</p>

This article was written by Eamonn Sheridan at

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