China in credit crunch as Beijing targets debt

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By ELAINE KURTENBACH, Associated Press

A spike in interbank interest rates is putting the squeeze on credit in China as the government tries to trim off-balance-sheet lending threatening the stabiliy of the country's financial system.

Pressures appeared to ease somewhat on Friday, as the key interbank lending rate dropped slightly, prompting speculation that the central bank had intervened, possibly through open market operations, to inject more funds into the system.

The People's Bank of China generally does not comment on its market activities.

But analysts say the spike in the rates banks charge each other for short-term borrowing appears a deliberate policy move intended to help trim the ballooning sums of debt, held by non-bank lenders. They say China's big, cash-rich state banks are less likely to be affected than smaller banks and trust companies.

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