China stocks tumble 2.3% Tuesday on policy shift

17:05, December 22, 2009      

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China's stocks continued a streak of bloodletting Tuesday, as investors were getting jittery of Beijing's latest moves to rein in loans and curb property price bubbles.

The Shanghai composite stock index tumbled 72.45 points, or 2.3 percent, to 3,050.52 at the close, the lowest in two months. The index has dropped about 5 percent this month alone, as Beijing has raised down payments on commercial land purchases and is going to raise down payment on a second apartment.

Industrial and Commercial Bank of China led declines among banks after central bank Governor Zhou Xiaochuan said Tuesday that reserve requirements for lenders remain an important tool (to curb non-performing loans). Poly Real Estate, the second-largest developer by market value, lost 2.8 percent at the close.

"The policy factor is still the biggest risk to the property industry," said Zheng Tuo, president of Good Hope Equity Investment Co. in Shanghai. "Given the importance of property to China's economy, investors are wondering if economic growth may be seriously impacted in 2010."

Governor Zhou said at a Beijing forum that reserve ratios are a tool "which we still put quite some emphasis upon," fueling speculation they may be increased to limit the risk of asset bubbles.

A record 9.2 trillion yuan ($1.3 trillion) of loans in the first 11 months of this year drove a recovery in the world's third-biggest economy and increased the risk of bubbles in property and stocks.

Industrial and Commercial Bank, the country's biggest lender, fell 1.4 percent to 5.07 yuan。

Zhou didn't say a reserve-ratio increase was imminent. He also said that policy makers had many tools at their disposal, including interest-rate moves and capital- adequacy ratios. China can tolerate a "certain level" of inflation because the economy is in transition, Zhou said.

Policy makers won't be overly "rigid" in targeting consumer prices, he added.

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