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Worries About Chinese Banks Are Overwrought

After making their point, the PBOC extended liquidity to the better-behaving banks and confirmed it would continue supporting institutions lending judiciously to the real economy. Immediate pressures waned, with overnight SHIBOR retreating to one-month lows Tuesday. But concerns remain as banks still have trillions of yuan in WMPs, which mature quarterly -- many fear banks will use new liquidity to roll these products over, not lend to businesses, and growth will thus slow. And it might slow some -- but that's not necessarily why. As part of their engineered shift from infrastructure and export-led growth, officials confirmed banks will get plenty of money to lend to "strategic emerging industries," such as high-tech manufacturing and services. So credit should remain available, but the ROI likely won't match infrastructure gains.

But slower growth isn't bad -- it's part of the plan, which limits surprise power (and long-term market-moving potential). More importantly, China's new model requires a freer financial system, which necessitates economic reform -- something markets like, though it likely won't come without some growing pains.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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