China's central bank calms markets, but tighter policy looms | Reuters

China's central bank calms markets, but tighter policy looms
| Reuters

The central bank wants to curtail funds flowing into China's vast "shadow" financial system that fuels property and stock speculation and push money into more productive areas of the economy to secure more sustained growth.
But its decision to let short-term borrowing costs soar to extraordinary levels last week fanned fears that a temporary squeeze could morph into a lasting credit crunch.
"Market sentiment has apparently improved somewhat, although the PBOC is still expected to stick to relatively tight liquidity policy," said a dealer at a major state-owned bank in Shanghai.
The central bank reiterated its warning to banks that they needed to manage their cash better and rely less on short-term borrowing, adding to expectations of tougher business conditions and possibly slower economic growth.
So while most Asian share markets rebounded from a four-day losing streak, taking comfort from encouraging U.S. economic data and the PBOC assurances, Chinese shares struggled to find traction.
The CSI300 .CSI300 index of leading Shanghai and Shenzhen listings staged an afternoon rally to end up 0.1 percent, having been down 1.5 percent, but the financial sub-index .SSEFN on the Shanghai exchange lost 1 percent.
Chinese stocks are down more than 20 pct from February peaks, and have lost about 10 percent over the past week.

Shanghai is down about 16% over the last month.