China Hits ‘Liquidity Trap’ as Low Rates Fail to Spur Bank Loans
(Bloomberg) — China’s low interest rates are failing to spur lending in the economy, creating a challenge for policy makers as they try to bolster the nation’s fragile recovery.
Central bank data on Friday showed a sharp slowdown in aggregate financing, a broad measure of credit, in July, as new loans and corporate bond issuance weakened.
At the same time, growth of M2, the broadest measure of money supply, accelerated more than expected to 12% in July. Taken together, the data shows banks are flush with cash but are struggling to boost lending to customers against the backdrop of weak growth and turmoil in the property market.
The data is a “classic sign of a liquidity trap,” said Craig Botham, chief China economist at Pantheon Macroeconomics Ltd. “Liquidity is ample, but no one wants it.” Under these circumstances, “monetary policy can do little to support the economy,” he said.
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