ABSTRACT This study aims to identify the liquidity trap and indicate the factors that affect money liquidity in China. A liquidity trap is an economical issue which is faced by lots of developed countries when their economy has achieved a certain stage of development, such as Japan, America and Europe. However, China as the fastest-growing developing country, some scholars suggested that its economy has also being trapped in a liquidity trap. Thus, to verify this opinion, monthly data of several important economic indexes were selected through a series of econometric process to indicate two major findings. First, the economy of China has not fallen into a liquidity trap. Besides, the interest rate and real estate price had a negative impact on the liquidity of money in China while the development of the financial industry had a positive contribution. INTRODUCTION Liquidity refers to the term used to describe how easy to convert assets into liquid assets, which mostly refers to cash because it can always be used easily and immediately. There are many indicators for the level of liquidity in a country. Liquidity of money in China can be explained by the speed of cash circulating in the market. In this study, the M1 currency over M2 currency was used to represent the liquidity of money. Based on this concept, the liquidity trap was in an extreme situation THE STUDY ON THE LIQUIDITY TRAP IN CHINA’S MONEY MARKET Caroline Geetha *1 and Soon Lin Fei 1 1 Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu, Sabah, Malaysia MJBE Vol. 7 (October, No. 1), 2020: 75 – 83 * Corresponding author’s email: caroline@ums.edu.my Received: 15 January 2020 Accepted: 18 February 2020 Keywords: liquidity trap, interest rate, real estate price, financial market