China stocks yesterday snapped a five-day winning streak after Beijing unexpectedly raised short-term interest rates on the first trading day after the Lunar New Year holiday, in a further sign it has moved to a tightening policy bias.
The blue-chip CSI300 index ended down 0.7 percent at 3,365.12 points, while the Shanghai Composite Index lost 0.6 percent to 3,140.65.
The People’s Bank of China (PBOC) raised the interest rates on open market operations by 10 basis points yesterday morning, reinforcing views that Beijing is opting for a “prudent and neutral” monetary policy stance this year.
It also raised rates on short-term lending facility loans.
“The move has some impact [in the stock market]. First, it directly affects money market rates and also it raised the expectation for further tightening,” Haitong Securities Co (海通證券) analyst Zhang Qi (張崎) said, noting that declining bond prices hurt insurers’ balance sheets.
PBOC Assistant Governor Zhang Xiaohui (張曉慧) said later that monetary policy would be kept generally prudent and stable, while also avoiding either a rapid slowdown in economic growth or excessive liquidity injections.
She also said China will keep the yuan basically stable and will avoid large volatility in interest rates and foreign-exchange rates.
The comments were made in an essay published by China Finance, a PBOC-affiliated magazine, through the messaging service WeChat.
Analysts said the tightening of primarily money market rates suggested the PBOC wanted to retain policy flexibility as it balances the need to keep the economy from slowing again.
Market attention was also on Xiao Jianhua (肖建華), the missing Chinese-born billionaire behind Tomorrow Group (明天集團). The tycoon may have been abducted from Hong Kong by Chinese agents, according to some media reports.
Shares in companies directly or indirectly controlled by Tomorrow Group slumped — Inner Mongolia Xishui Strong Year Co Ltd (內蒙古西水創業) and Baotou Huazi Industry Co Ltd (包頭華資實業) both tumbled 10 percent at the close, the maximum allowed.
Investors had muted response toward a private survey, which tends to focus more on smaller businesses, showing that China’s factory activity expanded for the seventh straight month in January, but at a slower pace.
Nearly all sectors in China’s mainland markets retreated.
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