China markets slump to new low amid credit-tightening fears

Chinese stocks touched a four-and-a-half-year low today amid persistent concerns over the government's credit-tightening policy.

The Shanghai Composite SSE index fell as much as 5.8 per cent at one point, before a late rally meant it ended down 0.3 per cent.

The rebound came after China's central bank said that it would guide market rates down to "reasonable" levels.

Last week, the bank indicated that the era of cheap credit was over, helping to trigger falls on global markets.

The People's Bank of China also blamed the recent spike in interbank rates - the interest rates banks charge each other on a daily basis - on seasonal factors, and said they would drop back down.

But the leadership has been keen to press the point that its credit-tightening policy will continue.

At midday, the CSI300 of the leading Shanghai and Shenzhen A-share listings was down 4.8 per cent at 2,067.8, its lowest since February 2009. The Shanghai Composite Index dived 3.8 per cent to its lowest since January 2009.

Losses of almost 11 per cent on the CSI300 this week have pushed its relative strength index to 14.1, suggesting it is at its most technically oversold level since the indicator was started in 2005.

The Hang Seng Index slid 1.4 per cent, while the China Enterprises Index of the top Chinese listings in Hong Kong tumbled 2.8 per cent. Both reversed early gains as turnover picked up in late morning trade.

In Shanghai, China Minsheng Bank plunged 9.9 per cent - the same percentage by which it fell on Monday - while Industrial Bank tumbled 5.7 per cent to its lowest since early December.

Smaller banks, among the biggest losers, are more reliant on short-term interbank funding. The Shanghai financial sub-index slumped another 5.2 per cent after sinking 7.3 per cent on Monday, its worst day since November 2008.

The "Big Four" Chinese banks were comparatively less hit in Shanghai. Industrial and Commercial Bank of China (ICBC) slipped 0.3 per cent and China Construction Bank (CCB) edged down 0.5 per cent.

In Hong Kong, ICBC shed 1.6 per cent, CCB 1 per cent, Bank of China 0.3 per cent while Agricultural Bank of China sank 1.7 per cent and Minsheng dived 4.7 per cent.

Rising on Tuesday was FIH Mobile, which said it expects to return to profit for the first half of 2013. FIH shares climbed 2.9 per cent in Hong Kong.

Other growth-sensitive sectors from materials and energy to property were broadly weaker, on fears that the jammed interbank market was affecting fund availability for companies.