The Chinese credit crisis gets messy

No one has denied that China was overdue for a credit shakeout due to the Chinese government’s desire to stem excess credit growth as the economy rebalances. The question has always been about how much of a shakeout Chinese policy makers are willing to accept and how destabilizing the shakeout would get regarding economic growth and employment. We seem to be reaching another level in terms of jitters with bank runs and commodities sector bankruptcies. Some thoughts below
As China tries to liberalize the banking sector in order to prepare its currency for fewer capital controls and better convertibility, the problem is that shadow lending has increased in importance and banks are feeling threatened. For example, even state-owned lenders are now launching investment products to compete with...


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