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While the spotlight has been on the Fed for the past few days, the PBOC has also been making big and difficult decisions on the other side of the globe.

Time and again, we’ve heard Chinese officials say that they would address the country’s growing debt problem. It’s no secret that China’s shadow banking system has helped propel the country’s growth in recent years. But also, it has raised skepticism on the capability of borrowers to pay back loans.

In fact, some math whizzes have estimated that since 2010, unregulated loans and investments in the financial sector have totaled to some 36 trillion CNY. That’s roughly equivalent to 69% of the country’s GDP!

Finally, the PBOC has joined in the government’s efforts to reel in credit in China by limiting the amount of cash available in the market.

You see, the central bank has a lot of ways to pump liquidity into the economy. If it wanted to, it can simply inject short-term cash or lower the minimum required reserves for banks. But that’s the thing… The PBOC doesn’t want to.

Interbank rates or short-term borrowing costs started rising earlier last week, ahead of the Dragon Boat Festival, which is typically seen before public holidays when banks are closed.

Many market junkies expected rates to fall when everyone got back to work…but that didn’t happen.

Banks have then called for the PBOC to inject some cash into the economy, but their catcalls have fallen on deaf ears. Heck, the PBOC even added pressure to the liquidity-tight market by draining 2 billion CNY!

More than just trying to ruffle some feathers, the PBOC is sending a warning signal to banks that they have to be wiser in issuing credit.

The immediate effects of the tightening measures are actually quite glaring if you happened to pay attention. Short-term interbank rates on one-month loans spiked 200 basis points to nearly hit 8%.

Meanwhile, for the first time in nearly two years, the Chinese government failed to hit its bond sale target, as it only sold 9.5 billion CNY worth of bonds when investor demand has soured thanks to rising rates.

The credit crunch has even forced small banks like Everbright Bank to default on some loans. Earlier this month, the bank couldn’t cough up enough cash to pay for a 6 billion CNY loan.

The problem is that this can’t be fixed overnight and may actually be a recurring theme over the next few months.

The Chinese government has said that it wants to control the pace of money supply growth in order to avoid creating price bubbles. Unfortunately, this will most likely take its toll on the economy and GDP growth.

In fact, the fellas over at HSBC have already lowered their growth forecasts for 2013, as now they peg GDP growth to be at 7.4%, way down from the initial estimate of 8.2%.

These effects won’t only be limited to China though. With China tightening, demand is sure to drop, and this could put pressure on countries whose economies are highly dependent on commodity trade. That’s right, I’m talking about the comdolls!

Keep in mind that China is a major trading partner of Australia, New Zealand, and Canada. With liquidity tied up, Chinese companies will scale back their orders of raw materials and this will hurt the exports from comdoll dependent economies.

In turn, this could lead to some bearishness on their respective currencies (AUD, NZD, and CAD).