China stocks extend fall on investors’ worries

China’s main stock indexes extended losses on Wednesday morning as investors were restrained by lingering worries over tougher regulation and a shift toward tighter policy to defuse potential debt-fuelled bubbles in the economy.

The CSI300 index fell 0.4 per cent, to 3,414.39, while the Shanghai Composite Index lost 0.3 per cent to 3,133.40 points.

Zhang Qi, an analyst with Haitong Securities, said that tight liquidity could curb demand for equities, although he said the risks of a sharp downturn in the benchmark Shanghai Composite were small.

The SSEC is up 1 per cent year-to-date, but has lost 4.7 per cent from its 15-month high hit in mid-April, when concerns about tighter policy and the broader economic outlook triggered a sell-off.

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China’s central bank injected 506.39 billion yuan (€67.2bn) into the financial system via short- and medium-term liquidity tools in April, down 18 per cent from the previous month, signalling a bid to slow rapid credit growth.

Super-loose policy

On Wednesday the People's Bank of China said it had injected 200 billion yuan into money markets through open market operations, but it made no mention of maturing medium-term lending facility loans.

After years of super-loose policy, the People’s Bank of China has cautiously shifted to a modest tightening bias in recent months, and regulators have stepped up a crackdown on riskier forms of financing as authorities try to contain financial risks from years of debt-fuelled stimulus.

On the day most sectors lost ground, led by real estate stocks, not helped by news that the Beijing branches of some major Chinese banks have raised interest rates on housing loans for first- and second-home buyers – the latest of several steps by authorities to check the heated property investment.

Insurance regulator

China’s Pangda Automobile Trade tumbled as much as 10 per cent for suspected violations of securities laws and regulations.

Last month China’s insurance regulator warned it would ramp up its supervision of insurance companies and threatened to investigate executives who flout rules in an effort to root out risk-taking.

Analysts expect the broad regulatory clampdown to continue, and the central bank to continue to further tighten policy, though most believe authorities will tread cautiously to avoid hitting economic growth.