In China, acash crunch looms

China will face one of the biggest tests of its campaign to contain corporate leverage next week, with more than $151 billion (Dh554 billion) set to leave the already stretched financial system.

Some 890 billion yuan ($129 billion, Dh474 billion) of reverse-repurchase agreements issued before the weeklong Lunar New Year break to meet seasonal demand will start coming due from Monday. Add that to the 151.5 billion yuan of maturing loans to commercial banks and conditions could be tight if lenders haven’t hoarded enough cash, according to Commerzbank AG.

“Deleveraging will be a prolonged process, there will probably be very painful periods for the markets going forward even as the central bank adopts a very sophisticated balancing act,” Zhou Hao, senior emerging-markets economist at Commerzbank in Singapore, said.

China has been stepping up tightening efforts since the third quarter, boosting the tenor of reverse-repo operations and the cost of medium-term loans as a way of forcing a reduction in leverage, while containing risks to the nation’s nascent economic recovery.