China stocks drop on tightening, bank levy

China's stocks in Shanghai and Shenzhen again slumped Thursday as investors were unnerved by the possible dire straits of banking and property sectors in the coming seasons.

The rumored report that the Washington meeting of G20 finance ministers and central bankers will discuss a global taxation on banks dragged the market further down, analysts said.

The Shanghai composite stock index closed at 2999.48 points, declining 33.79 points, or 1.11 percent on a turnover of 155.53 billion yuan. The Shenzhen index lost a smaller 0.53 percent.

Huge selling of bank and property shares led Thursday's slump, as China's Central Government has vowed to clamp down on red-hot real estate prices in the cities. Banks are apparently collaterals in Beijing's effort to stave off property inflation, as it tightens lending to mortgage seekers.

The Bank of Communications, the fourth largest by business volume, plummeted 0.38 yuan, or 4.93 percent, the Industrial Bank lost 1.26 yuan, or 4.10 percent, and the China Merchants Bank dropped 0.48 yuan, or 3.27 percent.

The state-run China Securities Journal said in a commentary Thursday that China must tackle its property bubble for the sake of economic health and social health, even if the market feels some short-term pain in the process.

It said monetary tightening, along with steps to control housing demand and manipulation, are the right policy choices for the government. Left unchecked, the bubbled property sector would distort the economy by suppressing much-needed consumption as people put so much of their savings into property.

Tough new measures announced in the past week have wiped out 240 billion yuan in the market value of listed developers and the damage will spread to related industries.

The head of China's banking regulator warned banks again on Tuesday against extending loans for speculative property investments and ordered all big lenders to conduct stress tests of real estate loans on a quarterly basis.

The Citigroup Inc. has predicted property prices may drop as much as 20 percent in the big cities as a result of the government clampdown, while the Shanghai-based China Business News reported record home-purchase cancellations in Guangzhou, South China.

Outside China, there are reports that Britain's government has recommended levying a new tax on lenders, and finance ministers of the G20 major developed and developing economies will convene in Washington this weekend to discuss the proposal, which is negative to the banks.

By People's Daily Online