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The Tell: China’s economy is on the verge of a painful credit crunch

One of China’s most widely used interbank borrowing rates surged to its highest level since late 2014 earlier this week, stoking worries that a painful credit crunch could be looming as the country’s central bank moves to tighten monetary conditions, according to a research note from Goldman Sachs.

China’s seven-day repurchase (repo) rate shot to 5.5% on Tuesday from 3.85% on Monday, before settling at 5% on Wednesday.

Goldman Sachs

For anyone who follows Chinese politics, the sudden jump in interest rates is hardly surprising: At an annual meeting of China’s parliament that concluded a week ago, the country’s leaders said that tackling risks related to the country’s growing pile of risky debt would become a priority.

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