There are plenty of reasons one could argue China isn't on the verge of a debt crisis: The country has $3.7 trillion in currency reserves, a closed financial system and ambitious leaders who claim to be on the case. And doesn't the biggest rally in Chinese stocks since 2008 count for anything?
But like Japan and other highly indebted countries that have struggled to deleverage, China isn't showing the requisite tolerance for pain. A case in point was the government's May 15 decision to order banks to prop up the same local-government financing vehicles, or LGFVs, that it claimed to be reining in.
Then the People's Bank of China (PBOC) decided last week to guide the three-month Shanghai Interbank Offered Rate to its lowest level since 2008. By manipulating "Shibor" in this way, the People's Bank of China is helping regional leaders accelerate their unsustainable borrowing.