Summary
- Chinese investors, companies flock to CDs for higher returns
- Liquidity trap brewing as loss of confidence in economy spreads
- Money managers draw parallels with Japan’s ‘balance sheet recession’ in 1990s
SHANGHAI/SINGAPORE, Aug 4 (Reuters) – China’s consumers and companies are tying up trillions of yuan in longer-dated deposits with banks, effectively taking a vast pool of money out of circulation and risking the kind of liquidity trap that hobbled Japan’s economy in the 1990s.
Latest official data shows financial institutions issued 5.5 trillion yuan ($766.12 billion) worth of long-term deposits known as certificates of deposit (CD) in the first quarter of this year – the largest such quarterly issuance since the product was introduced in 2015.
Domestic investors have rushed into these CDs over the past year in a desperate search for returns as they withdraw from real estate and the stock market, both traditional investment options now looking treacherous because of regulatory and economic problems.
Companies have joined the scramble this year, adding to the drag on China’s economy as it effectively means both businesses and households are hoarding cash rather than investing i