(Bloomberg) A financial drama is unfolding in China as the new year begins. Last week, for the second time in six months, interest rates in the critical interbank lending market spiked above 10 percent, prompting fears of a liquidity crisis that would trigger mass defaults and cripple the world’s second-largest economy.
Western investors largely ignored the cash crunch and failed to grasp its potential significance. Although the situation has largely eased after the People’s Bank of China hastily injected at least $55 billion into the market, that isn’t the end of the story. These repeated crises are a sign that the foundations of China’s investment-driven growth model are crumbling -- with unsettling implications for the rest of the global economy.