From China Real Time via Real Time Economics, really:
...A cash crunch in China’s all important money markets has hit the headlines, conjuring images of the U.S. after the collapse of Lehman Brothers.
On Thursday, interbank borrowing rates hit a nosebleed-inducing
28% for seven-day loans. Bank of China – one of China’s biggest lenders –
issued a denial after rumors of a default swirled. The shock has
started to ripple out to the rest of the financial markets, triggering a
sell-off in equities.
Is this Lehman with Chinese characteristics? The answer is no.
The central bank has vast resources at its disposal to prevent a
downward spiral. But it does highlight increasing stress in China’s
financial sector, as growth in the real economy pushes toward a 20-year
low. China Real Time charts it out.
Money markets are an essential building block of the financial
system, the place where banks lend and borrow to each other to fund
their daily operations. In China, they have grown rapidly in importance.
Turnover in the repo
market has risen from 11 trillion yuan in 2007, equivalent to 42% of
GDP, to 136 trillion yuan, equivalent to 263% of GDP, in 2012. A typical
repo transaction involves one bank using a Treasury bond as security
for a short-term loan from another bank....MORE
