http://www.marketwatch.com/story/the-next-shoe-to-drop-in-china-the-banks-2015-08-24HONG KONG (MarketWatch) — To many investors, the problem with China is a suspicion that things could be much worse than is officially being let on.
My own experience with a Bank of China ATM at the Hong Kong-Shenzhen border last Friday certainly got me thinking — just how bad is China’s liquidity crunch?
Also read: How panicky should be about China?
The problem was the ATM menu options had been limited to funds balance, transfer and deposit but none for withdrawal. And it did not appear personal, as all three cash machines were the same, refusing locals and foreigners alike.
This might be dismissed as merely anecdotal but it comes in the same week that global markets have zeroed in on Chinese capital flight risks and authorities have been scrambling to inject liquidity into the banking system.
Also read: China plans more steps to boost bank lending
In the past week the central bank made three interventions to boost liquidity, totaling some 350 billion yuan. Despite this interbank rates have remain elevated and reports suggest the People’s Bank of China’s next move will be to cut bank-reserve ratios to free up potentially another 678 billion yuan for lending.
Turning off the cash withdrawal functions of ATMs at the border is certainly one way to stem capital leakage, albeit a rather draconian and clumsy one.
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While it is also unlikely, it is not unreasonable to be wary of unexpected policy moves coming out of Beijing.
After all, few would have predicted measures, such as mass share suspensions and the banning of large shareholders from selling equities, that have been announced in recent weeks to support domestic stock prices.
Any signs that the fault line in China’s highly leveraged economy is spreading to its financial system, brings with it another layer of potential systematic risk. This always looked a possibility when authorities used the banking system and public funds to support equity markets.
