An Analysis Of The Causes For Excess Liquidity And Strategies For It

Since the year 2003, the credit of the Commercial Bank of China and the fixed assets investment of enterprises in China have been increasing at a speed higher than the government and economists have expected. In the past two years, in spite of the government's constant control efforts, the asset price has kept rising, and share prices have also soared rapidly in fluctuation. And at the same time, the CPI index in China has remained very high. Seeing through all these economic phenomena, such as the increase of the credit, asset price bubbles and stock investment bubbles, we can find that there is one common reason for them--- that is excess liquidity, which means, in nature, that there are excess foundation money. When excess currency pursues after limited asset, it is certain that the price of asset will rise.This thesis, consisting of 4chapters, is a systematic study of the causes for excess liquidity and its influence on the development of macro-economy in China. In the first chapter the author makes a literature review of the recent study on excess liquidity and based on the results of former study by Chinese scholars, the author puts forward his own ideas. In the second chapter, the author first defines liquidity and excess liquidity, and then discusses the problem of excess liquidity in the development of the economy in China under the present condition from the macro perspective. In the third chapter, after a further analysis of the specific performance of excess liquidity, causes for it, as well as its influences on the economy in China, the author gives some measures of macro-regulation the government can take to deal with the problem and some policy recommendations and suggestions of ways to solve and take advantage of excess liquidity are also given in this chapter.The major contribution of this paper is that the author makes a profound analysis of the essential reasons for excess liquidity and puts forward the concept of structural excess liquidity. The writer declares that the government should use monetary policy, fiscal policy and foreign policy together to solve the structural excess liquidity problem, instead of using monetary policy only.