The iShares FTSE China Large-Cap ETF (NYSEArca: FXI) has been under pressure recently amid worries a spike in short-term lending rates could trigger wider liquidity problems in the world’s second-largest economy.
Trading in FXI was brisk Tuesday morning as investors continued to focus on a report from The Daily Telegraph on China’s so-called shadow banking system and a warning from Fitch Ratings.
The ratings agency said China’s credit bubble in unprecedented in modern world history. “China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned,” according to the report.
Chinese interbank lending rates have surged following reports China Everbright Bank failed to repay a loan from Industrial Bank Co.
The Shanghai interbank offered rate, known as Shibor, is “telegraphing the rising stress in the opaque financial system of the world’s second largest economy,” reports Matt Phillips for Quartz. “What does the spike in rates mean? Large banks are increasingly leery of tapping into their pools of cash to lend to each other.”