A Credit Crunch with Chinese Characteristics

Great article today in the FT by Simon Rabinovitch in Beijing on the recent spike in short term RMB interest rates. No doubt man will fail to spot the significance of this, but for those with short memories, a spike in USD short rates is what killed Lehman. Why? Because banks borrow short and lend long, running a maturity mismatch between assets and liabilities. For Chinese banks right now any loan they haves de at less than 8% (and that's likely to be most of them) is losing them money.

This is unlikely to end well. 

I've said all along that governments splurging cash they don't have to alleviate the credit crunch will only put off the day of reckoning, not avoid it altogether. And when it arrives, the bigger the splurge the bigger, the headache.

(Before anyone says these are the Chinese banks not the government, they are majority government owned and went on a huge lending spree from 09-11 under government orders, mostly to local government special purpose vehicles with no assets to their name to finance questionable infrastructure projects. When the collapse comes it'll be as fast as you can spell Ponzi).