An official from the People's Bank of China (PBC), the central bank, said over the weekend that Chinese enterprises are exhibiting signs of a "liquidity trap," which may explain the weakening private investment trend and foreshadow slowed economic growth.

In Keynesian economics, a liquidity trap is a situation where liquidity injections fail to lower interest rates, and it renders monetary policy ineffective.

In the case of China, there's sufficient liquidity in the market but enterprises prefer to hoard cash instead of investing, so the effect of monetary policy on economic growth is limited, Sheng Songcheng, head of the Statistics and Analysis Department at the PBC, said in a financial forum in Shanghai on Saturday.

A proactive fiscal policy is needed to work along with monetary policy, Sheng said, citing measures like reducing corporate tax burdens, issuing more government debt and increasing the fiscal deficit.

The "liquidity trap" phenomenon became apparent because of the growing divergence between the M1 and M2 measures of money supply, which has been widening since October 2015.

M1 refers to liquid assets such as demand deposits and currency in circulation, while M2 is a broader measure of money supply, representing M1 and savings deposits.

Data from the PBC showed that China's M1 surged 24.6 percent year-on-year in June, marking the biggest gain in six years, while M2 rose 11.8 percent, maintaining the same as the previous month.

According to Sheng, the data caught his attention, because it is the first time in 20 years that China has seen a rapid increase in M1.

Historically speaking, rapid growth in M1 usually leads to a pickup in economic activity, but the country's situation is just the opposite.

China's monetary policy appears to be falling into a "liquidity trap," that is to say, even more money supply won't boost investment, Sheng noted.

The latest data are in line with Sheng's theory. China's aggregate total social financing soared to 1.63 trillion yuan ($243.98 billion) in June, up from 659.9 billion yuan in May and much higher than the market expectation of 1.1 trillion yuan, data from the central bank showed on Friday.

Private-sector investment, accounting for 61.5 percent of total investment, grew 2.8 percent year-on-year in the first half of this year, a record low, according to data the National Bureau of Statistics released on Friday.

With the weakening investment trend, economists are generally concerned about its impact on the economy.

"It is a challenge to identify where growth will come from in the coming months. The greatest concern is the ongoing slide in private-sector investment, which provides a clear sign that businesses are worried about economic prospects," Tom Rafferty, Asia economist at the London-based Economist Intelligence Unit, told the Global Times in an e-mail on Friday.

"We think the second quarter was the peak of the current 'mini-cycle' and expect GDP growth to stabilize in the third quarter but fade in the fourth quarter as the lagged uplift from earlier easing stimulus starts to fade," Wang Tao, chief China economist at UBS, said in a research note sent to the Global Times on Friday.

Policy and funding support should continue to prop up infrastructure investment growth but is unlikely to fully offset the deterioration in ­private and manufacturing investment, according to the note by Wang.