Picking through the debris left by the tides of liquidity that suddenly retreated in China last month throws up two important questions. First, what was Beijing playing at? Second, where should investors seek shelter if adverse liquidity conditions strike again?

The answer to the first question is fairly straightforward. Beijing’s leaders – confronted by the impotence of their previous attempts to slim China’s shadow finance system – had become determined to teach errant state-owned banks a lesson. The People’s Bank of China (PBoC) did this by desisting from injecting supplies of liquidity into the interbank market from June 13, just when the banks needed it most. Inflows of “hot money” smuggled in from Hong Kong were already dwindling following a separate crackdown on fake exports. The approach of the end of the quarter, when banks need funds to window-dress their accounts, also exacerbated the shortage of money.

Soon, the paroxysms of bank anguish were evident in vaulting interbank rates. At one point, the overnight Shanghai Interbank Offered Rate (Shibor), which had hung largely below four per cent this year, surged to more than 13 per cent. Still the PBoC kept up the squeeze.