Shares of Hong Kong-listed Chinese banks and property companies dropped after Beijing announced new measures to curb lending and avoid a possible property bubble formation in mainland China.
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The People’s Bank of China (PBoC) has announced that the minimum amount of money banks must reserve and not use for lending would increase by 50 basis points starting May 10.
This was the third increase since the start of the year and reflects China’s growing concerns that inflations due to speculations could lead to overheating in the wider economy.
At the end of Hong Kong trade, China Construction Bank fell 1.56 percent to HK$6.32 (US$0.81), Bank of China lost 1.72 percent to 4.01 and Industrial and Commercial Bank of China gave up 1.56 percent at 5.68 dollars.
Among Chinese developers, the Sino-Ocean Land fell 3.63 percent to 5.84, while China Overseas slipped 3.77 percent to 14.80 and China Resources Land lost 5.11 percent to 13.74.
Hang Seng Index also ended 1.41 percent lower.
However, Qu Hongbin, co-head of Asian Economics Research at HSBC in HK, said that China’s move to increase the reserve ration is expected.
"Despite a recent slowdown in new lending, loan growth still stays above 22 percent year-on-year, well above the (central bank’s) whole year target of 17 percent," said Mr. Qu.
"This calls for the (central bank) to continue to tighten its policy either through reserve ratio hikes, (central bank) bill issuance and lending curbs or price mechanism."
HSBC also said it expected the central bank to increase the reserve ratio by another 100-150 basis points in the coming quarters.
The increase, which excludes rural banks, is part of the government’s move to control an explosion in new lending that started in 2009, and has raised fears of inflation and a possible rash of bad loans that could stall economic growth.
Beijing has set a 7.5-trillion-yuan loan target this year, much lower than the 9.6 trillion yuan last year, which came when the banks responded to the government’s call to help boost the economy during the global financial crisis.
Aside from increasing bank reserve ratios, Beijing also boosted interest rates on benchmark three-month and one-year Treasury bills.
Other measures that the government has introduced to cool the property market include new curbs on loans for third-home purchases, a hike in the minimum down payment for second homes and tighter restrictions on advance sales of new developments.