China crisis: Stocks slammed amid credit squeeze

HONG KONG — Chinese stocks got hammered Monday. Shares on the Shanghai Composite Index fell 5.3 percent and shares in Shenzhen tumbled 6.73 percent.  

The selloff, the worst in four years, was fueled by worries over the continuing credit squeeze in China. 

As GlobalPost has explained, Chinese banks have been clamoring for cash, driving up interest rates on inter-bank loans.

Meanwhile, the central bank has refused to step in and infuse the market with cash. Beijing is seen to be sending a warning shot to banks that have been taking advantage of cheap money to make risky loans. 

At the moment, the credit scare seems to be under control. One expert who spoke with GlobalPost said there was nothing to worry about in the long run, though China's shadow-banking system could see a few more shocks. 

''Ultimately the government is rich, and I don't think this is going to be a very serious problem given that they're already paying serious attention," said Zhigang Tao of the University of Hong Kong. 

Prominent portfolio manager Mark Mobius told CNBC that while many investors are comparing China’s problems to the US subprime mortgage crisis, China’s status as a Communist market economy will prevent major Lehman-style failures.

“[T]he scenario will be very, very different in China, simply because the banks are controlled by the government, so they will not be allowed to go bankrupt," said Mobius, who manages $53 billion in emerging markets for Franklin Templeton.

Mobius currently has more money invested in China than in any other country, CNBC noted.