The Causes of Excess Liquidity and Macroeconomic Policy Choice in China

Excess liquidity has become a one of the main macroeconomic problems facing China today. In this paper, the author comprehensively described the excess liquidity problem in China and analyzed the causes using Granger causality test methods. The research found that the cause of excess liquidity is the imbalance of macroeconomic both internally and externally. From internal factors, excess liquidity is the result of the continued growth of exports and the trade surplus; while from internal factors, the excess liquidity is the result of low domestic consumption demand. Since the trade surplus and domestic economic structural imbalances can not be effectively solved in the short term, to solve the problem of excess liquidity, the government must implement the domestic consumer demand based macroeconomic policy and supplemented it with the development of financial market strategy.