People’s Bank of China official warns of ‘liquidity trap’ and calls for fiscal deficit of 3 to 5pc
China is falling into a liquidity trap where pumping money into the economy has failed to spur private investment, says central bank’s head of analysis
An official of China’s central bank on Saturday called for an increase in the fiscal deficit along with better policy coordination as China appeared to be falling into a liquidity trap where money-pumping failed to spur corporate investment.
Sheng Songcheng, head of statistics and analysis at the People’s Bank of China, called for a proactive fiscal policy, including trimming corporate tax burdens, issuing more government debt and increasing the fiscal deficit making to make monetary policy more effective.
China could handle a deficit of 3 to 5 per cent, Sheng told a financial forum in Shanghai, without elaborating on where his confidence came.
China targeted a fiscal deficit of 3 per cent this year, or 2.18 trillion yuan (HK$2.62 trillion).
“Despite loads of liquidity pumped to the market, enterprises would rather bank the money in current accounts in the absence of good investment options, which is in line with record low private investment data,” Sheng said, noting that monetary policy alone won’t be enough to bolster growth.