One major explanation being posited is that this is the just the next step in the Chinese government's attempt reduce credit expansion/leverage in the system. However, what if this is a different signal - that of a funding crisis? Such a crisis was prelude to the US-led recession of 2008.
On face, China's metrics are fine (gdp growth of over 7%, large fx reserves, small deficit), the soft landing scenario from rapid growth. However, how much of this growth was economical and indeed sustainable? The overall china argument has been debated ad nauseum centering on non-economical commercial real estate backed by a levered shadow banking system, but could this funding crisis be catalyst for the bears? After all, this is not just restricting lending, it is choking China' banking system.
More specifically the strongest point that is related to this is China's own "Ponzi Scheme" (central bank governor's works) fundamentals in its wealth management products and in others' opinions (see: Chanos) more generally the China's shadow banking system. These products essentially allow yet another layer of borrowing short to lend long. However, what happens when funding disappears (a la Lehman 2008) given the vast proliferation of these products?
As a result, what if the funding pop is not by choice? A large flood of liquidity would push the rmb lower, usually okay, but given Fed tapering could push the rmb lower than even what the government/economy wants? Furthermore, fear of this could unfortunately be self-fulfilling because a push to buy usd could lead to more conversion into usd (or non-rmb currencies) ahead of a banking/currency crisis.
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