MercoPress. South Atlantic News Agency

Black Monday in China’s impacts on world markets

Latest data on industrial production could turn the market bullish again

Chinese equities Monday plunged 6.74% to a three-month low as investors showed concern a slowdown in bank lending would erode economic growth, reported the Xinhua news agency. The benchmark Shanghai Composite Index fell 192.94 points to finish at 2,667.75. This was the largest daily drop for the key Shanghai index since June last year.

The Shenzhen Component Index tumbled 7.55%, or 864.99 points, to end at 10,585.09. Combined turnover shrank to 196 billion Yuan (28.7 billion US dollars) from 207.38 billion Yuan last Friday.

On Friday it was reported that new Yuan-denominated loans in August amounted to 200 billion Yuan, which indicated lending for the entire month would be far less than 300 billion Yuan, or even less than last August's record low of 270 billion Yuan.

However to stimulate economic growth, China's banks extended a total of 7.73 trillion Yuan new loans in the first seven months this year, far exceeding the annual target of 5 trillion Yuan

All sectors on the two stock exchanges fell. Losers outnumbered gainers by 842 to 27 in Shanghai and 726 to 23 in Shenzhen. Nearly 300 stocks fell by the daily 10% limit. The collapse of Chinese equities had an immediate major impact on emerging markets and currencies and to a lesser extent in industrialized countries.

Nevertheless expectations for Tuesday could change radically following the release of data indicating that China’s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year according to two surveys.

The official Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said in an e-mailed statement Tuesday in Beijing. A PMI released by HSBC Holdings Plc also jumped.

Gains in output, orders and jobs added to evidence that Premier Wen Jibao can meet his 8% growth target for the year as a stimulus package counters falling exports.

The official PMI “shows that China’s economic rebound will maintain momentum,” Zhang Ligun, a researcher at the State Council Development and Research Centre, said in Tuesday’s statement. But he also cautioned that there were “uncertainties” in the economy and a mix of “positive and negative factors.”

Eighteen industries, including petrochemicals, beverages, metal processing and equipment manufacturing reported expansions. Only textiles and pharmaceuticals contracted.

The State Council, China’s cabinet, said last month that it saw signs of a recovery in manufacturing and also announced plans to curb overcapacity in the steel and cement industries.

China’s economic growth accelerated to 7.9% in the second quarter from a year earlier on the nation’s 585 billion US dollars stimulus package and more than 1 trillion USD of new loans in the first half. The 6.1% expansion in the first three months of the year was the weakest in almost a decade.