China rocked by cash crunch, surprise fall in factory output

China squeezes cash to avoid crash
China squeezes cash to avoid crash

    JUST WATCHED

    China squeezes cash to avoid crash

MUST WATCH

China squeezes cash to avoid crash 01:34

Story highlights

  • Lack of bank access to cash, surprise fall in factory output rock China
  • China's seven-day rate jumped to record 12% after Beijing refused new funds
  • China central bank aims to slow expanding debt, easy access to credit
  • Shanghai Composite Index has slid 10% since the start of June
China delivered a one-two punch of negative economic data this week, hitting first with an initial report on factory activity falling to a surprise nine-month low and then with interbank lending rates rocketing to a record high.
The gloomy numbers keep fears alive that the world's second-largest economic engine is not just slowing down -- but also seizing up.
China's main seven-day repurchase rate jumped to a record 12% this Thursday, according to CME Group. China's weighted average overnight repo rate hit 13.1% -- the highest in more than a decade.
The rate spikes are a reaction to Beijing's decision earlier this week to withhold new infusions of cash into the markets. One of the central bank's aims is to slow the growth of China's ballooning debt and stop easy access to credit.
The country's total debt is estimated to stand at more than 200% of GDP when debt from the central government, local governments, corporations and households are included, says Swiss bank UBS.
China's cash crunch a 'homegrown issue'
China's cash crunch a 'homegrown issue'

    JUST WATCHED

    China's cash crunch a 'homegrown issue'

MUST WATCH

China's cash crunch a 'homegrown issue' 04:46
In China, economics influences politics
In China, economics influences politics

    JUST WATCHED

    In China, economics influences politics

MUST WATCH

In China, economics influences politics 02:55
China's GDP expected to grow
China's GDP expected to grow

    JUST WATCHED

    China's GDP expected to grow

MUST WATCH

China's GDP expected to grow 03:50
U.S.: China currency very 'undervalued'
U.S.: China currency very 'undervalued'

    JUST WATCHED

    U.S.: China currency very 'undervalued'

MUST WATCH

U.S.: China currency very 'undervalued' 01:17
In April, Fitch had warned China of its high debt levels, downgrading the country's long-term currency rating. The ratings agency cited expansion of easy credit and structural weakness in China's economy.
However on Friday, repurchase rates fell on reports that China's central bank had supplied more than $8 billion in new liquidity to ease the current cash crunch.
On June 20, the same day that China's repurchase rates hit record highs, HSBC's June "flash" purchasing managers' index fell to a nine month low of 48.3. A PMI reading below 50 indicates contraction in the country's manufacturing sector as new export orders plunged from major trading partners like the United States and Europe.
Since June 1, China's benchmark Shanghai Composite Index has fallen 10%.