China’s once-successful economic model is starting to run out of gas and the battle to reform it will most likely be long. In an effort to cut back on rampant, risky lending, the People’s Bank of China refused to give money to banks that really needed it. As part of the shadow-lending system, some of these banks would have loaned that money back out – at a higher rate in a more speculative part of the economy. The central bank’s message to smaller banks: Don’t take for granted that you can get money whenever you need it.
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