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China stocks tumble on concerns

China's stocks tumbled the most in 10 years on concerns that the government will crack down on illegal investments, bursting a bubble that helped drive benchmarks to records.

"This is the first day when the bears on the index have won," Liu Yang, who manages Atlantis Investment Management (HK) Ltd's US$421 million Atlantis China Fund. "It's very simple to me. After very good returns, the market just wants to take a rest by using any excuse to sell."

The rout wiped out US$107.8 billion from a stock market that doubled in the past year, as 249 of the benchmark's 300 shares plunged by the 10 percent limit. The Shanghai and Shenzhen 300 Index slid 250.18, or 9.2 percent, to 2457.49. The measure, which jumped 13 percent in the past six sessions, closed at a record 2707.68 on Monday.

China Vanke Co (萬科集團), China's biggest property developer, and China United Telecommunications Corp (中國聯通), which controls the nation's second-largest mobile-phone operator, were among stocks that fell by the limit to 14.26 yuan and 4.89 yuan, respectively.

The State Council, China's highest ruling body, has approved a special task force to clamp down on illegal share offerings and other banned activities in the market, the government said.

The government must pay attention to "bubbles" in its stock market before they get out of hand, Cheng Siwei (程思危), vice chairman of the Nation's People Congress, wrote in a commentary published Feb. 6 in the Chinese-language Financial News. The Congress next convenes for an annual meeting on March 5.

"People are worried that more tightening measures may come out," said Mona Chung, who helps manage about US$950 million at Daiwa Asset Management Ltd in Hong Kong.

China imposes restrictions on the amount of stocks international investors can buy. UBS AG's US$800 million quota is the largest among 52 overseas institutions approved to invest in mainland stocks and bonds.

Stocks surged last year after a government plan to make more than US$200 billion in state-owned stock tradable revived investor demand and paved the way for sales by some of the nation's biggest companies. The economy, which in 2005 overtook the UK as the world's fourth biggest, averaged annual growth of 9.6 percent in the past five years.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, plunged 8.8 percent to 2771.79.
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