IDEAS home Printed from https://ideas.repec.org/a/mes/ijpoec/v39y2010i3p45-63.html
   My bibliography  Save this article

Excessive Liquidity and Bank Lending in China

Author

Listed:
  • Xinhua Liu
  • L. Wray

Abstract

This paper analyzes two contending views of money and excess liquidity at both the theoretical and the practical levels. We relate the analysis to China's skyrocketing credit expansion in 2009 and its relationship with the housing market boom. The conventional view is that such a bubble is highly dangerous and is largely caused by great sums of "excess liquidity," which, in turn, induced Chinese banks to lend funds. This supposedly fueled the fire in real estate markets and also pushed up the stock market. However, it is unclear what "excess liquidity" is and where it comes from. Also remaining unresolved are questions about how it is affecting the real economy and what should—or could—China do to deal with such problems. We will attempt to illustrate China's "excess liquidity" situation within the framework of post-Keynesian-Chartalist "modern money" theory and will conclude that China's liquidity "dilemma" is almost much ado about nothing. However, China does face a longer term problem mainly caused by its foreign exchange regime and its overdependence on external demand. Although not as harmful as many have argued, solving this problem will require thorough understanding of the properties of modern money and of associated policy reforms. We believe that China, with its sovereign currency, can overcome these problems and can switch to a much more sustainable internal demand-driven full employment development path.

Suggested Citation

  • Xinhua Liu & L. Wray, 2010. "Excessive Liquidity and Bank Lending in China," International Journal of Political Economy, Taylor & Francis Journals, vol. 39(3), pages 45-63.
    • Handle: RePEc:mes:ijpoec:v:39:y:2010:i:3:p:45-63
    DOI: 10.2753/IJP0891-1916390303
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2753/IJP0891-1916390303
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.2753/IJP0891-1916390303?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tommaso Gabrieli & Keith Pilbeam & Tianyu Wang, 2018. "Estimation of bubble dynamics in the Chinese real estate market: a State space model," International Economics and Economic Policy, Springer, vol. 15(2), pages 483-499, April.
    2. Gabrieli, Tommaso & Panagiotidis, Theodore & Xu, Yishuang, 2019. "Pair-wise convergence of intra-city house prices in Beijing," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    3. Chen, Ting-Hsuan & Chou, Hsiu-Hsia & Chang, Yuan & Fang, Hao, 2015. "The effect of excess lending on bank liquidity : Evidence from China," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 54-68.
    4. Amir, Md. Khaled, 2019. "Does Excess Bank Liquidity Impact Non-Performing Loan? A Study on Bangladeshi Economy," MPRA Paper 101150, University Library of Munich, Germany, revised 10 Aug 2019.
    5. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "Bank excess reserves in emerging economies: A critical review and research agenda," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 158-166.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:ijpoec:v:39:y:2010:i:3:p:45-63. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MIJP20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.