Chinese investors, companies flock to CDs for higher returns
Liquidity trap brewing as loss of confidence in economy spreads
Money managers draw parallels with Japan39;s 39;balance sheet recession39; in 1990s

SHANGHAISINGAPORE, Aug 4 Reuters China39;s consumers and companies are tying up trillions of yuan in longerdated deposits with banks, effectively taking a vast pool of money out of circulation and risking the kind of liquidity trap that hobbled Japan39;s economy in the 1990s.

Latest official data shows financial institutions issued 5.5 trillion yuan 766.12 billion worth of longterm 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 China39;s economy as it effectively means both businesses and households are hoarding cash rather than investing it, despite lower interest rates a classic liquidity trap that plagued Japan for years beginning in the 1990s.

Based on Japans experience in the 1990s, there is the risk that China is entering a liquidity trap due to the risks of balancesheet recession, said Natixis39;s chief economist for…