Shadow banking blamed for cash crunch
Funding squeeze suggests Beijing has shifted focus to quality of market liquidity
There is ample liquidity on the mainland and the latest surge in money market rates was a result of market distortions caused by widespread speculative trading and shadow financing, Xinhua said in a commentary yesterday.
The central bank faced down the country's cash-hungry lenders on Friday, letting interest rates again soar to extraordinary levels of about 25 per cent for some banks, as it steps up the pressure to rein in rampant informal lending.
Comments from Xinhua confirm analysts' suspicions that the central bank's funding squeeze was aimed at reducing non-bank lending, or shadow banking, which has boomed in recent years.
The cash crunch was intended as a warning to overextended banks, but it has also fed fears that a miscalculation could trigger a full-blown crisis.
Xinhua said there was sufficient liquidity in the market, with data showing broad M2 money supply rose 15.8 per cent in May from a year earlier, and the total social financing aggregate, a broad measure of liquidity in the economy, was more than 1 trillion yuan (HK$1.26 trillion).
"The banks are short on cash, the stock market and small and medium-sized enterprises are short on cash, but there is ample money supply in the market," it said.