A cash squeeze is rippling through the Chinese financial system despite three days of liquidity injections by the country's central bank, as borrowers scramble to secure funds before the end of the year.
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An electronic display broadcasts stock prices this past week in Shanghai.Associated Press
The situation worsened Friday as the interest rate banks charge each other for short-term loans jumped to 8.2%, the highest level since a crippling liquidity shortage in the summer. The stress in the banking system is starting to spread: Stocks in Shanghai fell for a ninth consecutive day to the weakest level in four months, while government bonds dropped, pushing the 10-yield near to its highest level in eight years.
The People's Bank of China issued its second statement about the developments in two days, saying it had injected a total of 300 billion yuan ($49.4 billion) into the financial system over the previous three days.
The statement, released on the central bank's official account on Weibo, China's Twitter-like microblogging service, said the cash injection was aimed at coping with changes in the money market at year-end. It didn't elaborate.
The turmoil has been sparked by a scramble for funds by banks and other borrowers in the world's second-largest economy as they near the end of the year, when they typically need extra cash to meet regulatory requirements and funding demands from companies.
This year many of China's banks are already under stress. Investors have pushed their stock prices below book value because of concerns about rising defaults on loans and the slowest domestic economic growth in 20 years.
The interbank-lending market in China has grown dramatically in recent years, in part because of demand from the country's surging shadow-banking sector. Lending by shadow banks has increased as China has tried to limit borrowing from traditional banks in an attempt to control the country's rising debt levels.

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The central bank said Friday that banks should adjust the structure of their assets and liabilities, a possible reference to the growing dependence of some banks on short-term interbank loans to fund their assets.
The central bank said on Thursday that it is using a special type of short-term liquidity operation to inject cash into the system.
Another factor driving the stress in the interbank-lending market is that many loans made by the central bank aimed at easing the cash squeeze will mature at the end of the year, forcing borrowers to come up with the cash to pay them off.
"The fragile nature of the financial system remains a challenge for the central bank and poses a threat to the economy," said Zhang Zhiwei, an economist at Nomura. He says the central bank's action will "likely help to prevent a recurrence of the June liquidity squeeze in the short term."
The year-end cash squeeze differs from the turmoil of the summer because the central bank has continued to add cash to the system, rather than cut it off as it did then, when short-term rates topped 28%. By keeping money tight and pushing rates up, the bank is trying to curb lending, but also limit the growth of China's shadow-banking system and force banks to learn to manage under a system of market-driven interest rates.
The big worry is that the cash shortage could lead to a bank defaulting on its loans, which could spark chaos in the markets and spur bankers to hoard cash. Those fears were brought real this week when China Everbright Bank Co. 601818.SH -3.96% , the country's 11th biggest lender, admitted it had defaulted on 6.5 billion yuan ($1.07 billion) worth of interbank loans on June 5, the eve of the summer liquidity squeeze, although it made good on the loans the following day.
Coincidentally, China Everbright's shares began trading in Hong Kong on Friday in a $3 billion initial public offering. Weak investor demand forced the bank to price its offering below its 2013 book value and the shares fell 2.8%, an unusually large decline for a big IPO, which typically draw support from the deal's underwriters. The Hong Kong market fell slightly Friday, while stocks in Shanghai fell 2% to their weakest level since September.
Few are predicting a repeat of the summer chaos. The seven-day repurchase agreement rate, a measure of short-term funding costs, is still well below the rates of 28% reached during the height of the summer turmoil. Since then it has averaged around 4.2%, compared to around 3% earlier in 2013 and 2% to 3% in recent years.
The higher rates appear to be a deliberate effort by the central bank to tighten monetary policy this year to actively rein in the riskiest types of lending among banks. Smaller banks are especially vulnerable to the higher borrowing costs as they're most reliant on the interbank market for cash, as they have smaller deposit bases than larger state-owned banks that are deemed safer.
That means the central bank isn't just able to pour money into the market as it will encourage financial institutions to continue with their bad lending practices, said Haitong Securities 600837.SH -3.71% analyst Jiang Chao.
Many banks invested too much in illiquid assets such as local government debt for high yields, and are now struggling to borrow money to meet short-term cash needs, Mr. Jiang said. To fix the mismatch between the assets and debts of banks, all the central bank can do is maintain its tightening bias while sending signals occasionally to appease the market, he says.
—Amy Li