Chinese Central Bank Pledges to Avoid a Credit Crunch

China’s financial markets calmed down on Wednesday after days of turmoil thanks to the central bank’s pledge to prevent a credit crunch, but stocks struggled as investors braced for tougher conditions in the world’s second-largest economy.

The People’s Bank of China (PBOC) said late on Tuesday it had helped some banks and was ready to act again as the lender of last resort for those caught in a short-term squeeze. However, it was also sticking to its stance of tightening market conditions as it seeks to rein in sharp growth in informal lending.

The central bank wants to curtail funds flowing into China’s vast “shadow” financial system that fuels property and stock speculation and push money into more productive areas of the economy to secure more sustained growth.

But its decision to let short-term borrowing costs soar to extraordinary levels last week fanned fears that a temporary squeeze could morph into a lasting credit crunch.

via Reuters

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