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HSBC Holdings plc Message Board

  • techanalyst_trader techanalyst_trader Jun 20, 2013 11:38 PM Flag

    China's Central Bank Is Engineering A Liquidity Crunch To Tackle The Shadow Banking System


    China's Central Bank Is Engineering A Liquidity Crunch To Tackle The Shadow Banking System

    It was just a matter of time until the relentless pressure imposed by Chinese regulators on the shadow banking system took their toll on the country’s financial system. In the aftermath of Fed Chairman Ben Bernanke’s game-changing press conference in which he unveiled plans to draw-down quantitative easing, interbank lending rates in China spiked, raising the financing costs dramatically which will ultimately force deleveraging across the system. Interestingly, this is a self-inflicted wound, as the administration of Premier Li Keqiang attempts to tackle the problems that could lead to a financial crisis.

    With global markets in hurried retreat, and U.S. stocks taking it on the chin, short-term borrowing costs in China surged dramatically. The 7-day repo rate jumped to a record 12% while the overnight repo hit 25%. China’s liquidity crunch is most definitely underway.

    It has been for a few months now, according to Nomura, which began warning of the downside risks to the Chinese economy back in March. In their attempt to clamp down on the massive, and growing, shadow banking system, the new administration has pushed total social financing dramatically down, from $410 billion in March to $200 million in May, Nomura’s data. Manufacturing has contracted for two consecutive months, HSBC’s PMI data revealed on Thursday, as the index hit nine month lows.

    Credit growth is out of control in China, where it’s currently twice as big as GDP and growing twice as fast. As I previously reported, overall credit has grown from $9 trillion to $23 trillion in the five years since the implosion of Lehman Brothers, with credit-to-GDP going from 75% to about 200%. About $5.6 trillion of that

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