China's liquidity is high, according to a research report on China's liquidity by Xia Bin, head of financial research at the Development Research Centre of the State Council.

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The report noted that China's huge trade surplus pressured the central bank to increase the currency supply. So far, however, the increased levels of base currency supply have been controlled by the central bank. Many had assumed the result would be a liquidity flood driven by the imbalance of international payments.

According to the report, fluctuations of the consumer price index in recent months were caused by hikes in oil and food prices and adjustment orders from the government. Except for property prices, overall prices remain low.

Also according to the report, the current liquidity is a result of endogenous factors like the booming stock market, which has funneled deposits out of banks. Therefore, the excess liquidity will have less of an impact on the actual economy than on virtual economies like securities markets.

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