DANWEI – Chinese online forums have been buzzing with rumors and theories about last week’s cash crunch, the reasons for the central bank’s liquidity squeeze and what it means for business and the economy. This week’s Danwei Bulletin looks at one story connected to the squeeze: reports of Ping An investing heavily in Wealth Management Products (WMPs).

Despite a decline in interbank lending rates from record highs, there are few clear signs that the central bank is bowing to pressure to inject liquidity.

Current tight liquidity within China’s financial system is due to regulations aimed at clamping down on the thriving Rmb-dollar carry trade and limiting banks’ investments in trusts, with the central bank extremely reluctant to intervene to alleviate the liquidity crunch. Mounting pressure may force it to act against its will, however.

Economists and analysts have been assessing the likelihood and the likely impact of capital account liberalisation by the new Chinese leadership.

Recent moves by regulators reveal the outlines of a strategy to avoid a potential financial crisis, while keeping financing relatively robust in 2013.

An expanded short-selling programme could inject some life into China’s lacklustre equities market.

While it is still too early to gauge the outlook for reform under the new leadership, there have already been several important statements and a few key moves.

A dispute over a non-performing wealth-management product sold by Huaxia Bank has highlighted growing concerns over the risks associated with these increasingly popular but extremely opaque financial products.