A “cash crunch” is on in China. But don’t call it that, because China banned use of the term last week.

The New York Times reports China Rates Approach Crisis Levels Despite Central Bank Measures.

An exceptional bid by China’s central bank to curb soaring interest rates and relieve pressure on the financial system appeared to have come up short on Monday, as Chinese money market rates shrugged off the measure and continued to approach the crisis levels seen in June.

The central bank, the People’s Bank of China, said late Friday that it had provided more than 300 billion renminbi, or about $50 billion, in short-term funds to selected banks over a three-day period that week.

Rates continued to surge on Monday, however, in China’s money markets — a key source of short-term funding for commercial banks and also for financial institutions engaged in risky, off-balance-sheet shadow lending.

One key rate, the seven-day repurchase rate, rose as high as 10 percent on Monday. That was double the rate of a week earlier and the highest level since June, when the People’s Bank of China allowed rates to surge in an effort to curb speculative investment in the country’s sprawling shadow banking sector. 

China’s banks are scrambling for short-term cash to meet month-, quarter- and year-end regulatory requirements. At the same time, demand for cash is high among Chinese companies seeking to meet year-end payments.

China Bans Words “Cash Crunch”

Last Friday, the Financial Times reported China presses media to tone down cash crunch story.

Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue when markets reopen on Monday.

Money market rates surged again on Friday, even after China’s central bank announced on Thursday evening that it had carried out “short-term liquidity operations” to alleviate the problem.

The benchmark Shanghai Composite Index fell 2 per cent on Friday, its ninth consecutive day of losses and its longest losing streak in 19 years.

In response Chinese censors have warned financial reporters not to “hype” the story of problems in the interbank market, and in some cases have forbidden them from using the Chinese words for “cash crunch” in their stories, according to two people with direct knowledge of the matter who asked not to be named.

Don’t worry. There isn’t a cash crunch because China says so. Heck, China even banned the words. That should be proof enough. Besides, a quick check shows the Shanghai composite index is up a bit today at the time of this writing.

Clearly, central bankers everywhere have everything perfectly under control. For now.

Mike “Mish” Shedlock