Structural adjustment may cause liquidity squeeze

The nation is paying a price for economic structural adjustment, reflected in commercial banks' surging nonperforming loans. To avert further risks, the People's Bank of China may take measures to control the expansion of debt.

Difficulties are increasing for the central bank to manage liquidity. The traditional measure of increasing money supply based on the position for foreign exchange purchases is no longer efficient, and the uncertainty of capital flows is increasing.

Amid slower economic growth, a rise of commercial banks' NPLs will lead to liquidity problems, which will cause volatility and influence interbank interest rates.