China injects 2.7 Billion Dollars into into the banking system to help out with the liquidity freeze that hit many Chinese banks last month. Also in recent news lending jump by 27 Billion Dollars in the first week of July, while deposists dropped by 114 Billion Dollars. Gordon Chang hypothesizes that the reason for the drop is that it is the failout to shady interbank lending and accounting practices. Specifically the practice of using high return short term accounts, called Wealth Management Products, that they use to bolster deposit numbers. The process is repeated again next month and, as Boomberg noted, is a giant ponzi scheme set to implode.
Somewhere between 1.2 to 2.08 trillion dollars of Chinese savings are possibly floating around in these accounts, much of these funds are from ordinary chinese. This begs the question, what will happen when the WMPs eventually implode?