Stocks drop 1.44% amid tightening worries

15:45, September 09, 2010      

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China's stocks slumped by more than 1.4 percent on Thursday, as banks, real estate, energy and metal companies all declined to the rumor that Beijing is likely to tighten its hand to control housing bubbles.

The Shanghai composite stock index, which tracks the bigger of China’s two stock exchanges, dropped 38.94 points, or 1.44 percent on a daily turnover of 156.16 billion yuan.

A majority of listed banks and property developers tumbled by more than 2 percent, as a top banking industry regulator warned of the risks building up in the financial sector, and the recent sudden rise in urban housing sales and prices has spurred speculation of even stricter government regulation measures.

China’s Vanke Co, the country’s largest real estate developer, dropped 3.38 percent to 8.28 yuan, and Poly Real Estate Group Co., the second largest, dived 4.07 percent to 11.32 yuan. The China Merchants Bank, the sixth largest lender by asset, dropped 2.43 percent to 13.23 yuan, and Pin An Co., the country’s second largest insurer, lost 2.55 percent to close at 48.49 yuan. Baosteel of Shanghai, the largest iron and steel maker, dropped 3.31 percent to end at 6.71 yuan.

Mr. Liu Mingkang, chairman of the China Banking Regulatory Commission, told a commission meeting lately that serious risks could cripple the banking system. Mr. Liu urged financial institutions to improve design, implementation and application of “stress tests” to appraise how vulnerable they are to a major downturn in the economy, such as a crash in the property prices.
“We must not ignore the hidden systemic risks and dangers,” Liu told the meeting, according to Chinese media reports.

Meanwhile, Mr. Xia Bing, a top government economist who sits at the central bank’s policy advisory commission, told the press that Beijing is resolute in implementing its current policies of reining in property market speculation, curbing local government financing vehicles, and promoting energy conservation and eradicating waste and pollution, efforts analysts say will drag down China’s economic growth later this year.

Mr. Xia said in comments published Thursday that Beijing authorities are prepared to see a substantial decline of GDP growth to around 9 percent in the third quarter and 8 percent in the fourth.

Market watchers forecast a few sessions of substantive corrections in China’s stock market, as investors are now spooked by renewed uncertainties surrounding policies. The rhetoric from senior government advisors that the Central Government has the determination to cool off the property market, and draw down the stimulus program by clearing the debts of local government’s financing arms, is to have a negative impact on investors’ momentum, they say.

Despite the recent small rise in housing prices, Beijing is expected to act cautiously to phase in stricter tightening measures, such as increasing mortgage interest rates, or rushing to impose the much-talked property taxes.

By People’s Daily Online


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