Shanghai Indexes Drop 2% on Rate Increase

Chandrasekhar Atreya
27 Dec, 2010
New York City

Stocks in Shanghai plunged nearly 2% after China lifted rates over the weekend. The second rate increase in as many months is expected to do little to ward off the rising food and property prices. Tibet registered a sharpest rise in foreign trade in first eleven months to November.

[R]5:00 PM Hong Kong, China – Stocks in Shanghai plunged nearly 2% after China lifted rates over the weekend. The second rate increase in as many months is expected to do little to ward off the rising food and property prices. Tibet registered a sharpest rise in foreign trade in first eleven months to November.[/R]

China’s central bank raised the key interest rates on Saturday, the second increase in just over two months as food prices continue to rise at a faster pace. Economists are indicating that China is looking to “front load” the interest rate curve and stay ahead of inflation.

The People’s Bank of China said it will increase the benchmark lending rate by 25 basis points to 5.81% and benchmark deposit rate also by 25 basis points to 2.75%. The central bank said these latest rates will be applicable from Sunday in a statement on its Web site.

The Shanghai Composite Index plunged 1.90% or 53.75 to close at 2,781.40. The CSI 300 Index dropped 2.0% or 63.25 points to close at 3,099.71. Markets in Hong Kong were closed.

The latest move was prompted by the rise in real estate prices in major cities and a surge in food prices. The statement from Premier Jiabao did little to soothe market nerves.

Chinese government is confident of keeping the inflation under control, Premier Wen Jiabao said on Sunday after the central bank raised interest rates. He also promised to speed up government efforts to curb the spurt in house prices.

“We have raised reserve requirement ratio six consecutive times and increased interest rates twice to absorb excess liquidity in the market to keep it at a reasonable level to support economic development. I believe we can keep prices at a reasonable level through our efforts,” he said in a state radio broadcast on Sunday.

In the next five years, China will proceed with development of its industrialization, information, urbanization and market economy while global environment will be generally favorable to China’s peaceful development, said Zhu Zhixin, Vice Director of the National Development and Reform Commission, China’s top economic planning body.

Shanxi Province generated $11.4 billion in foreign trade in the first 11 months of the year, its commerce bureau said on Sunday.

In November, the trade volume rose 57% annually to $1.24 billion, including $487 million of exports, up 104.6%, and $762 of imports, up 36.7%, the bureau said.

The volume of exports and imports from January to November in the Tibet Autonomous Region reached $693 million, up 94% from a year ago period, the largest growth rate in the provinces of China, both autonomous and municipalities.

China signed an agreement on Saturday with Jordan to provide that kingdom with $4.5 million towards economic and technical help for implementation of development projects.

The agreement was signed by Jordan’s Minister of Planning and International Cooperation Jafar Hassan and China’s Deputy Minister of Commerce Chen Jian, who was on an official visit to Jordan.

China exported 102,000 tons of aquatic products via the ports of Hainan Province in the first 11 months of 2010, up 1.6% from a year ago, local customs said on Sunday.

Stock Movers

Banks, real estate developers and insurance companies closed lower after China lifted rates on the weekend. Early rally in insurance stocks faded near closed and stocks in the sector closed lower.

Industrial & Commercial Bank of China Ltd dropped 0.7% after gaining as much as 1%, in the wake of China’s decision to increase interest rates on Saturday.

China Vanke Co fell 2.9% to 8.75 yuan and Gemdale Corp dropped 1.22% to 6.5 yuan. China Eastern Airlines Corp fell 5.69% to 6.59 yuan after 860 million shares of the airlines came in for trading today.

Guizhou Panjiang Refined Coal Co climbed as much as 7% to 30.85 yuan after state-owned companies signed contracts worth 300 billion yuan with the southwest province of Guizhou.

Jiangxi Copper gained 1.14% to close at 41.82 yuan.

Ping An Insurance Group Co dropped 2.14% to 55.78 yuan and China Life Insurance Co fell 1.21% to 21.98 yuan.