Hopes for a soft landing are diminished after last month's strong inflation data
China's extension of credit-tightening measures to a host of new industries sent mainland stocks plummeting yesterday as investors fretted that more stringent measures could be in the pipeline.
Any hopes that the economy was headed for a gentle landing have been put on hold with last month's inflation data showing the fastest increase in prices for seven years, raising the spectre of further credit tightening, higher interest rates and potentially stern counter-cyclical measures as recently indicated by the top leadership.
'Even though we've not reached the worst-case scenario, more measures are likely to come,' HSBC senior China economist Qu Hongbin said.
On Thursday, the State Development and Reform Commission, the People's Bank of China and the China Banking Regulatory Commission (CBRC) issued a circular adding textile, petrochemical, pharmaceutical, printing, construction materials, non-ferrous metals industries, as well as light industry, to a list where credit was to be suspended or tightened.
Yesterday, the H-share index, which tracks shares of Hong Kong-listed mainland state firms, dropped 4.7 per cent or 184.82 points to 3,747.03. This compared with the broader Hang Seng Index, which lost 1.05 per cent or 120.08 points. In China, the Shanghai A-Share Index slipped 2.19 per cent and its Shenzhen counterpart fell 2.18 per cent.
