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China stocks tumble 4.7%, turnover shrinks

(Agencies)
Updated: 2009-02-18 15:31

China's stock market tumbled for a second straight day on Wednesday, and turnover shrank, because of fears that a surge in January bank lending could prove negative for the economy rather than signaling a recovery.

The Shanghai Composite Index slid 4.72 percent, its biggest drop since mid-November, to close at 2,209.86 points. It sank 2.93 percent on Tuesday.

Related readings:  Banks report record loan growth in Jan  Stocks slide 2.9% on loan probe jitters  Report: China checking on leap in bill financing

Turnover in Shanghai A shares shrank to 134.9 billion yuan ($19.81 billion), still heavy but down from 168.8 billion yuan on Tuesday. Falling turnover could indicate flows of fresh money into the market are drying up.

The index jumped to a five-month closing high of 2,389.387 points on Monday, up 31 percent this year, after data last week showed new bank lending rising sharply. But in the past two days, the market has increasingly come to believe that the structure of the lending betrayed weakness in the economy.

A large fraction of it was short-term discounted bill financing, which suggested that both banks and companies remained worried about the long-term outlook for the economy, and that some of the money raised by firms might be fuelling a stock market bubble.

The banking regulator is investigating the jump in discounted bill financing, fearing it could create excessive risks, China Business News reported on Monday.

China International Capital Corp said in a report that the rise of discounted bill financing was "clearly unsustainable" and that the stock market's rally, which would prove short-term, was the result of growing economic imbalances.

"We expect growth of both money supply and credit may face major downside risks going forward," it said.