CER reports:
Markets in Shanghai fell last week, with a particularly sharp dip on Tuesday followed by a same-day recovery. Standard and Poor's and other rating agencies issued warnings on banks' abilities to pay investors and continue making new loans, which could raise the risk of default for some companies.Bank of China and Industrial & Commercial Bank of China reportedly stopped lending to businesses and individuals outright.
In reality, the banking system itself is far from the edge of insolvency. The tightening was a short-term exercise by People's Bank of China that intended to punish bad lending practices and starve the shadow banking sector. The main risk associated with the squeeze was the possibility of the government mismanaging the situation, according to Bank of America Merrill Lynch China Economist Lu Ting. But control over liquidity was still tightly in the hands of the government.
Read more: http://www.chinaeconomicreview.com/China%27s-cash-crunch-panic
