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China’s Liquidity Crisis Worsens As Fed Vs PBOC “Taper” Wars Escalate

zerohedge.com / by Tyler Durden / 12/23/2013 19:08 -0500

While global currency wars have esclataed over the last 4 years (as we noted here), the potential return to fund outflows triggered by the Fed taper, combined with higher demand for funds ahead of Chinese New Year, means there will be continued pressure for China’s money market rates to stay high heading into January. With China’s reform and rate liberalization plans, it seems 2014 may be the year of the Taper Wars.

None of this should come as a big surprise (given we covered the debt problem is great detail here)… but bringing us up to date on the impact of the Fed’s tapering and liquidity flows, WSJ reports,

Analysts said the short-term cash injection didn’t help the underlying problem of banks struggling with funding, in part because the injections go to bigger banks and the funding problems are mostly at midsize and smaller lenders. “It’s mostly meant to prevent financial institutions from suffering an exhaustion of their cash supply, but it doesn’t represent an easing in funding conditions,” said Wu Sijie, senior analyst at Guangfa Bank.

During the squeeze in June, there were rumors that a bank had defaulted on a loan to another bank, but no bank admitted it. However, ahead of its initial public offering in Hong Kong last week, China Everbright Bank disclosed in its prospectus that two of its branches failed to pay 6.5 billion yuan of interbank loans due on June 5. Everbright Bank said it had the cash on hand to repay the loans, but a failure by its branches to tell headquarters that they were short meant the bank was unable to cover the loans before the end of the day.

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