The People's Bank of China is seeking to allay fears of a credit crunch after a shortage of day-to-day cash among commercial banks in the world's second biggest economy drove market interest rates to almost 10% on Monday.

Beijing said it would top up the $50bn in liquidity provided to the markets last week as it sought to counter concerns that China's financial sector is gripped by the sort of squeeze that caused havoc among western banks during the crisis of 2007-08.

Benchmark interbank rates – the rates at which banks lend to each other rather than to the public – climbed to 9.8% at one stage on Monday, their highest for six months, despite the central bank's cash injections last week.

The actions by the PBoC were a response to signs of tensions in the far east's financial markets, caused by an earlier tightening of policy by the central bank, aimed at reducing the risk of cheap credit causing asset bubbles.

Banks in China often find themselves short of cash at the end of the year as companies increase their demand for capital and institutions have to meet tough regulatory requirements. China's growing shadow banking system, which tends to offer higher interest rates to investors, has also been draining funds from traditional banks.

Lorraine Tan, director of equity research at S&P Capital IQ, told CNCBC that the PBoC may need to take more action.

"I think it's just a momentary thing … it's a seasonal issue, a rush for cash. Definitely the PBoC needs to pump in more money, which it has been doing, but a little bit more is probably necessary."

Beijing pumped trillions of yuan into the economy during the global meltdown of 2008-09 and succeeded in ensuring that recession was short-lived. But officials have grown increasingly concerned that the stimulus encouraged excessive borrowing by commercial property companies and by local government. The PBoC has been pushing up interest rates in recent months to rein in credit growth without causing a "hard landing".

Investors fear the combination of Fed tapering – the gradual winding down of America's quantitative easing programme – and tighter China interest rates could weigh on emerging market currencies and assets, as it did back in June.

Worries about the banking system contributed to a 2% drop in Shanghai shares on Friday, although the stock market steadied on Monday after Christine Lagarde, the managing director of the International Monetary Fund, said she would be revising up her forecasts for US growth in 2014.

The export-focused economies of east Asia are heavily dependent on demand from the world's biggest economy, and Lagarde said recent data from the US suggested that the Fund's estimate of 2.6% for 2014 was too low....Four years ago I predicted that China would fragment.
The utterly corrupt, booming golden triangle would dump the dirt poor hinterland. In China today vast, mega-mega cities are growing in an uncontrolled way with rural workers flooding into these cities. Result? lawlessness, destructive pollution, slave labour and mini oligarchies. The collapse of China will be a black swan. It will come suddenly. One final nail in their coffin. You cannot pay off real debts with paper money and theory assets.

Excellent article by Jerome Vitenberg

Some 50 years ago, Njord, the mythological Norsk god of wealth, smiled on the hardworking fishermen and lumberjacks, and presented Norway with the gift of oil. In financial terms, this was a handsome gift indeed, currently translated into a natural bounty worth $740 billion. Successive Norwegian governments pledged to save this wealth for the welfare of future generations. Yet, half a century after this windfall began, questions increasingly arise of whether Norway’s handling of its oil wealth has even withstood the test of the past, much less the future.

The country’s 2013 election campaign spawned a debate about the government’s management of the massive Norwegian Oil Fund. Norwegian citizens, however, have been trapped within a virtual bubble: Far from raising and discussing serious concerns, the debate in which the country has been engaged is fundamentally flawed. Behind the rosy picture that Norway’s leaders have painted of the country’s economy lie some difficult truths. We have only to chip away a little at this bright façade to realize that a far less glittering reality lies beneath the surface. First, the oil fund is a mathematical artifice. At three-quarters of a trillion dollars, the Norwegian Oil Fund appears to provide plenty for a country with scarcely 5 million citizens. Yet the country has accumulated a foreign debt that, at $657 billion, is almost as massive. Subtracting the debt from the fund’s $740 billion leaves a balance of only $83 billion. In other words, there is a treasure chest, but it is almost empty: Njord’s prize for future generations is only a little more than 10 percent of its putative value.

Even if we take the fund’s worth at face value, its future is not guaranteed. In a 2011 analysis, “What Does Norway Get Out Of Its Oil Fund, if Not More Strategic Infrastructure Investment?” University of Missouri economist and Wall Street financial analyst Michael Hudson offered a stark assessment: The Norwegian oil monies are invested mainly in the unstable economies of Brazil, Russia, India and China, or in volatile real estate in the West.

Although the fund records short-term profits from its holdings of bond and stocks, its strategy is one of “speculate and diversify.” It is based on the hope that spreading the risk widely enough can hedge against a catastrophic collapse in a particular region or sector. Yet in today’s turbulent economic environment, this seems to be a strategy for multiplying exposure to speculative risks rather than protecting against them. Thus, not only does Norway’s massive debt render the fund’s true value largely illusory, the future of the fund itself is highly precarious.

The second awkward fact Norwegians have yet to confront is that their country’s disproportionate dependence on oil hangs like an economic sword of Damocles above its head. In August, the Economist predicted that following improvements in shale-gas technologies and the development of electric cars, a significant decrease in the demand for oil is rapidly approaching. Although marginally referenced in the Norwegian Finance Ministry’s most recent self-congratulatory white paper, “Long-term Perspectives on the Norwegian Economy 2013,” Norway’s administrators chose to gloss over this glaring issue, preferring the relative safety of a somewhat theoretical and speculative prognostication about the country’s economy in 2035-2060.

If technical improvements in the field of alternative energy indeed continue, and if forecasts of an imminent and substantial drop in demand for oil is correct, the consequences for Norway could be catastrophic. Its gross domestic product (GDP), today concentrated on oil and its derivatives, could collapse. Its exports will crash, and with its current massive levels of public-sector spending, the important ratio of public debt to GDP — currently at around 30 percent — will spiral, bringing the country close to default. Norway could, very quickly, find itself in a much worse economic state than it was before the discovery of oil.

The flip side of this dependence on oil provides the third major structural weakness in the Norwegian economy: The country’s non-oil industrial infrastructure has been seriously neglected. Although the election campaign yielded talk of improving it, such plans may be too little and too late. Oil and its related industries drain the labor force, driving up labor costs as relatively few hands are available for more productive sectors.

Moreover, the accountants and bankers who manage the oil fund claim that spending too much on domestic infrastructure and investments in industrial production would overwhelm the small local economy and cause inflation. Incredibly, only 4 percent of the fund may be utilized for such purposes. This compares with the 60 percent that Mr. Hudson recommends be used for direct investments in domestic and regional enterprises to ensure that the Norwegian economy is viable after the oil wells run dry.

The Norwegian people are understandably proud of the massive nest egg they think they possess. The truth hidden from ordinary Norwegians is that much of the country’s oil bounty has already been squandered. If Norway is to avoid being drawn inexorably into the abyss, it must fundamentally reassess its policies and learn the lessons of the global developments that have affected the world of finance and real estate since the 1960s.

After 50 years of complacency, time is now working against the Norwegian people. Njord is no longer smiling on them, but will they notice?

Jerome Vitenberg is an international political analyst. He has taught Political Science and International Relations for the London School of Economics and Political Science via the University of London’s International Programs.

The Eurozone was doomed from the start. The sooner it is disbanded the better. The EU itself should be reformed, with trade agreements being the main objective. No more idiotic EU rules and regulations. No more open borders, just a common market.

Rarely has the "economic gulf" that separates the English-speaking world and continental Europe looked quite as wide as it does today. While much of the eurozone remains mired in an economic funk, Britain and America are recovering fast, with rising demand and near record levels of private-sector job creation.

As if the last, crisis-ridden three years haven’t already given Europe’s policy elite enough to think about, this juxtaposition in fortunes must surely have awoken them to the truth: monetary union isn’t working. Unfortunately, the reality is that euroland continues to stumble blindly from one botched response to another, neither able to reconfigure the single currency in a more sustainable form nor enact the sort of measures that might give it a credible future. This week’s blueprint for a banking union is only the latest example. Even in Brussels, they struggled to call it a job well done; this was meant to be the most significant leap forward for European integration since the launch of the euro itself, but in the event it was just another messy compromise.

Overly complicated and chronically underfunded, it fails some of the most basic tests for any credible banking union. Decisions on whether to wind up failing banks remain subject to national veto; more crucially still, there is no agreement on collective responsibility for the costs. At some stage in the future, these things are meant to fall into place, but Europe really doesn’t have the luxury of time. Even major economies such as France, Italy and Spain are right on the edge of social and political fracture. The euro offers no plausible path back to growth, yet they cannot or will not give up on it.

Not that these failings should be cause for triumph in Britain and America. Europe’s tragedy is Britain’s misfortune, forcing the UK artificially to support demand via the palliative of extreme forms of monetary stimulus to avoid the same fate. This can work for a while, but eventually Britain needs to rebalance its economy away from consumption to trade and investment.

European leaders tend to console themselves with the thought that the UK’s economic recovery is therefore just a conjuring trick, which cannot last. Even so, they can no longer ignore the contrast. Their own forced march to ever closer union seems to have resulted only in policy paralysis and economic ruin. By pursuing their own solutions outside the madhouse of eurozone integration, Britain and America seem to have kickstarted growth. Europe needs monetary stimulus but thanks to a dysfunctional single currency cannot have it; it needs labour market reform, but outside Germany and its satellites, is unwilling to enact it; and it needs burden-sharing, but its nations are still too fiscally sovereign to contemplate it. European leaders naively seem to assume that recovery is just around the corner. The truth is that they have made themselves hostage to the storm even as America and Britain navigate their way out...It was always going to be the case that a feeble currency union could only work with political union. That is why if the Euro is to survive, the Eurozone must become a single country. This new country will include all the current Eurozone Members. Whatever name they chose to call it, in reality, it will ruled by Germany. The plan seems to be working...It was always going to be the case that a feeble currency union could only work with political union. That is why if the Euro is to survive, the Eurozone must become a single country. This new country will include all the current Eurozone Members. Whatever name they chose to call it, in reality, it will ruled by Germany. The plan seems to be working...  

Bitcoins tumbled in value after Chinese authorities acted to curb trading in the virtual currency.

The government has banned domestic third-party payment companies from providing clearing services for virtual currency trading platforms, according to a report in the China Business News.

BTCChina, the country's biggest Bitcoin trading platform, and other Bitcoin exchanges in the country rely on third-party providers to handle the transactions for bitcoin trading as they are not licensed to handle clearing services that enable investors to deposit and withdraw their money.

BTCChina, on its Twitter-like Weibo account, told users it "has no choice but to stop accepting yuan deposits".

Although traders can still make deposits in other currencies, the move has pummelled volumes on BTC and slashed bitcoin's value.

Prices on BTCChina stood at 2845 yuan ($468) each early on Wednesday, down 60pc from their high of 7,588 yuan in November. 

^{Chart from BTCChina showing sharp fall in value of Bitcoins}

Chinese speculators have poured money into Bitcoins this year, driving the BTCChina price up 9,122pc from January 1 to November 30 and making the country at times the world's biggest Bitcoin market.

Authorities have raised concerns and two weeks ago China's central bank ordered financial institutions not to provide Bitcoin-related services and products and cautioned against its potential use in money-laundering.

Bitcoin is a form of cryptography-based e-money that offers a largely anonymous payment system.

China’s central bank has rushed to pump money into the stalling banking system but markets across Asia still fell sharply amid fears that the world’s second-largest economy faces a credit crisis.

Cash rates on China’s money markets jumped after the move by the People’s Bank of China (PBOC) to ease a liquidity squeeze on banks. Both the Shanghai Composite Index and Hong Kong’s Hang Seng Index also fell amid concerns over structural problems in China’s financial system.

The Chinese seven-day bond repurchase rate, which essentially measures liquidity in the financial system, climbed to 7.6pc its highest since fears over a banking crisis in China first emerged over the summer.

State media in China had reported that the PBOC has unexpectedly pumped $33bn (£20bn) into the domestic money market through what it refers to as “short-term liquidity operation”.

“The focus is again on China where there is plenty of discussion on the squeeze in interbank funding markets,” said Deutsche Bank in a note to investors Friday. “The repo rate is now higher than yesterday amid market talk of a missed payment at a local Chinese bank. This is something to monitor over the next few days.”

Fears over a looming Chinese debt crisis spurred by a poorly regulated and opaque financial system stoked fears over the summer that the Asian powerhouse could finally be on the brink of a sharp slowdown in growth.

Much concern also surrounds what has become known as the “shadow banking” system that allows the Chinese to borrow money beyond their means.

EU finance ministers are seeking to cobble together a deal over a new system aimed at heading off a renewed eurozone bank crisis , under intense pressure to seal an agreement on their new flagship policy ahead of a two-day Brussels summit.

EU officials announced a "crucial breakthrough" on a backstop for rescuing or winding up failing banks in the Eurozone.

But the details were inconclusive and were still being haggled over by all 28 EU finance ministers in Brussels as Wednesday drew to a close, with the summit due to start on Thursday.

Germany has balked at the notion of pooled taxpayer liability for the eurozone banking sector under a banking union.

The key issues were: who pays to wind up or recapitalise a failing eurozone bank, and who decides when a bank should be closed down?

EU officials said the breakthrough meant a "common" or pooled Eurozone backstop would be available for dealing with troubled banks. The common backstop would not be available until 2025 at the earliest and would consist of a €55bn (£46bn) pot of money raised by the banks themselves via a levy over the decade from 2015.

In the meantime, Germany conceded that the eurozone's €500bn bailout fund, the European Stability Mechanism (ESM), could be used as a last resort for rescuing failed banks if governments did not have enough money.  But the agreement looked fragile, hedged with conditions and caveats, and was attacked as inadequate by the European Central Bank (ECB), whose credibility is at stake as the new supervisor of most of the eurozone banking sector under the new regime. EU leaders need to agree on the banking wind-up arrangements, known as the Single Resolution Mechanism and the Single Resolution Fund, at their summit on Thursday and Friday if the deadlines for getting the new system operational are to be met.

Two weeks of late-night meetings in Brussels and Berlin have pushed issues to the brink. There will be big problems with getting the deals agreed with the European parliament, and with national ratifications of a new treaty between participating governments on the funding of banking resolution.

The French-led group of southern countries, the European commission and the ECB opposed this.

"It's a choice between a banking union that's not perfect or nothing," said a senior EU official. In the transitional decade, from 2015, the issue is what happens in a banking crisis. Under German insistence, there will be no European response except as a last resort; nor will there be any escape from adding to national debt burdens to fund a bailout. The original aim of the scheme was to break the link between bad banks and sovereign debt levels. National authorities will be responsible for bailing out banks if funds from the bank levy, as well as contributions from bank creditors, investors, and shareholders, are insufficient.

The governments concerned would also be able to ask to tap the ESM in an emergency, but according to existing restrictive rules. This was the main German concession.

Stupid is what Stupid does ...judge for yourself !

Credit rating agency Standard & Poor's incited the ire of European Union officials on Friday when it snatched away the region's top AAA rating, citing tensions between member states and a deterioration in their overall financial health.

Downgrading the EU to AA+, the agency said the 28 countries' combined creditworthiness had declined – but officials and leaders shot back with an assertion that the region had barely any outstanding debt relative to GDP.

EU rules say that countries using the euro are not allowed to have an annual deficit of more than 3% of GDP, but several countries have failed to keep to that rule in recent years.

Note that Germany, Italy and France were all among the first countries to break the Maastricht rule during the last decade, while Spain and the Republic of Ireland ran surpluses before the 2008 crisis. Since 2008, peripheral economies such as Spain, Greece and Portugal have run big deficits, because their economies have slumped, generating less tax revenues and requiring more unemployment benefit payments.
Ireland experienced an exceptionally enormous deficit of 31% of its GDP in 2010, largely due to the cost of rescuing its banks.
Italy, however, has faired surprisingly well. In fact, if you exclude the cost of interest payments on its enormous debts (which the graph does not), the Italian government has consistently run budget surpluses.