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China's cash squeeze caused by shadow banking: Xinhua

Published on Jun 23, 2013 4:13 PM

SHANGHAI (REUTERS) - There is ample liquidity in China and the latest spike in money market rates was a result of market distortions caused by widespread speculative trading and shadow financing, state news agency Xinhua said in a commentary on Sunday.

China's central bank faced down the country's cash-hungry banks on Friday, letting interest rates again spike to extraordinary levels of some 25 percent for some banks, as it steps up the pressure to rein in rampant informal lending.

Comments from Xinhua, seen as a government mouthpiece, 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 engineered by the central bank was intended as a warning to overextended banks, but it has also fed fears that a miscalculation could trigger a full-blown crisis.

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