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May 16, 2010

China Stocks Slide on Property Curbs

China's main stock market plunged more than five percent Monday, on concerns about government steps to cool the country's property market and fears about the impact of European debt woes.

China's main market, the Shanghai Composite Index tumbled 5.07 percent Monday, hitting a 12-month low.

The slide was the index's biggest loss since last August.  Property and bank stocks led the fall.

Daphne Roth, the head of Asian equity research at ABN Amro Private Banking's office in Singapore, says the biggest fear among investors in China is more economic tightening measures from the government.

"The first quarter GDP was 11.9 percent and also property prices have been going up and transactions remain very high. So, apparently, whatever the government has been doing, some of the soft policy measures did not work out the way that they wanted them too," said Roth.

On Saturday, Chinese Premier Wen Jiabao was quoted by state media as saying the government will take decisive measures to contain increases in property prices in some cities.

In April, property prices in China rose nearly 13 percent, the biggest annual jump in nearly five years.

In response, Chinese authorities launched a series of tightening measures, including new curbs on loans for third home purchases and the raising of minimum down-payments for second homes.

Consumer inflation continues to grow steadily in China, reaching 2.8 percent in April, its highest point in 18 months.

Roth says the draconian measures investors fear could also include possible price caps on electricity, fuel and food.

"I think this is the fear of the market," she said.  "That's what they are fearing now, that there will be more measures until the government sees some slow down."

Analysts say concerns about the recent performance of the U.S. stock market and the situation in Europe were also having a negative impact on investors.

They say there are concerns harsh spending cuts mandated by a bailout plan in Europe may choke off a fragile recovery in the 16-country euro zone.

Such concerns were also having an impact on stock markets across Asia, Monday.

In Japan, the Nikkei average fell more than two percent to a 10-week closing low.  South Korean shares dropped three percent, extending a decline there.  Stocks on Hong Kong's Hang Seng index fell 2.5 percent, the port-city's lowest closing level since February.