Shares across Asia fell Tuesday with Chinese stocks leading losses among the region’s major markets after the People’s Bank of China moved to tighten policy slightly.
Comments yesterday by the head of the central bank and a out of character move by the bank in China’s money markets sparked concerns of a tightening in policy and a more stringent approach to risks in the financial system from too much liquidity and rising share prices.
Any crackdown on stockmarkets and investments would hit China hard (as they have done several times in recent years). This time though China is the fastest growing economy in the world and any tightening of policy could trigger a sudden loss of momentum especially with COVID back as a concern.
Those fears saw Hong Kong’s Hang Seng index dropped 2.55% to close at 29,391.26 with Hong Kong-listed shares of Chinese tech giant Tencent losing 6.2% after the company’’s market value went close to topping the $US1 trillion level.
Mainland Chinese markets were lower on the day, with the Shanghai Composite losing 1.51% while theShenzhen component fell 2.277%.
South Korea’s Kopsi closed 2.14% lower after the central bank released a preliminary report showing the economy’s growth slowed in the final quarter of 2020, to leave the economy down 1% for the year as a whole – the biggest annual fall 23 years.
In Japan, the Nikkei slipped 0.96% while the Singapore market lost nearly 1%.
Newsagencies said the People’s Bank of China drained about $US12 billion via open-market operations on Tuesday – a move considered unusual in the lead up to the Lunar New Year holiday (which starts on February 12 and lasts a week).
That’s because the demand for cash from consumers is at its highest to pay for seasonal travel, food and gifts.
Bloomberg said the move also went against recent reports in local newspapers that liquidity wouldn’t be tightened before the holidays.
But the move adds to signs of growing concerns in the government about rising share prices and other investments have stoked excess in markets.
“PBOC adviser Ma Jun told Chinese media that risks of asset bubbles — such as in the stock or property market — will remain if China doesn’t shift its focus toward job growth and inflation management instead,” Bloomberg reported.
Those remarks supported comments from PBOC governor, Yi Gang who told the World Economic Forum’s on line meeting that China’s monetary policy will continue to support economic growth and the central bank will watch debt and non-performing loan risks.
Yi said China’s macro policies will focus on maximising employment, which will help boost consumption, and China’s exports will remain pretty good this year.
“Monetary policy will continue to prop up the economy, but at the same time we will watch for the risks. We will keep a delicate balance between supporting economic recovery, at the same time preventing risk,” Yi said.
“One risk is the macro leverage ratio of China increased somewhat last year, the second risk is non-performing loans that are growing, and we also look at external risks, which is look at the capital flow situation.”
Western analysts took these comments to mean that China is likely to cool credit growth and scale back fiscal stimulus this year to help stabilise debt levels, but not derail the recovery.
China’s economy grew 2.3% in 2020 and GDP is tipped to hit a rate above 8% in 2021 before slowing to 5.5% rate in 2022. That presupposes no further problems with COVID.
“We will ensure our policies are consistent and stable, and we will not exit from supporting policy prematurely,” Yi told the Davos on line forum.