Chinese companies are hoarding more cash than ever, increasing concerns that the country is facing what’s known as a liquidity trap, where the expansion of credit becomes ineffective in stimulating investment and consumption, according to Caixin. Economists say that the divergence in the growth rates of two of China’s main measures of money supply over the past year shows that companies prefer to hold their money as cash rather than spend or invest it, or even save it in fixed-term deposit accounts. The phenomenon suggests that the central bank’s loose monetary policy is failing to lift growth. The gap has widened at alarming rates over the past four months as the People’s Bank of China has pumped liquidity into the market to support the slowing economy.
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