World Markets Reel on China Credit Concerns


LONDON (AP) - Global stock markets reeled Monday, with Shanghai's index enduring its biggest loss in four years, after an increase in China's commercial lending rates sparked fears about the state of the world's second-largest economy.

Analysts say the spike in the country's interbank lending rate was part of an effort to curb the high level of off-balance-sheet lending in China that could threaten the country's financial stability.

But investors feared the move could also hurt economic growth. China's major state-owned banks are unwilling to lend to any but their biggest clients, so the vast majority of smaller businesses must rely on informal lending.

Mainland China's Shanghai Composite Index plummeted 5 percent to 1,968.51 while the smaller Shenzhen Composite Index plunged 6.1 percent to 881.87.

The drop unsettled European markets, where Britain's FTSE 100 fell 0.6 percent to 6,077.58 and France's CAC-40 slid 1.1 percent to 3,616.81. Germany's DAX was down 0.7 percent to 7,732.27 after a key businesssentiment index rose slightly, suggesting the recovery in Europe's largest economy continues, though at a slow pace.

Wall Street also appeared headed for losses, with Dow Jones industrial futures down 0.6 percent to 14,624. S&P 500 futures lost 0.7 percent to 1,573.30.

Analysts at Moody's Investors Service said that they saw the Chinese central bank's action as "having been the result of a conscious decision" to curb credit growth.

Moody's added that a prolonged credit crunch could threaten Chinese companies, "especially those in the private sector with weak credit quality, because it heightens the risk that banks will scale back lending to those companies." Moody's says that China's central government finances remain strong, but that rapid credit growth and liabilities at the local level pose a threat to growth.

Andrew Sullivan of Kim Eng Securities in Hong Kong said China's new leaders want credit to be available to keep the economy moving but not so much as to promote asset bubbles.

"After six months in power, the new leadership is putting its policies in place. It's signaling that credit is going to remain tight," Sullivan said. "All that is in line with moving China from being an export driven economy to being a domestic consumption economy."

The concerns over China's credit market were magnified by existing worries that access to money will tighten in the world's largest economy, the U.S.

Investors fear what will happen as the U.S. Federal Reserve slows down its monetary stimulus program, which has been pumping $85 billion into the financial system every month and helped many stock indexes reach multiyear or record highs. Markets tumbled last week when Fed Chairman Ben Bernanke said the program would likely slow down this year and end in 2014.

The market impact of the Fed's stimulus withdrawal would be magnified if China tightens its monetary policies at the same time.

Elsewhere in Asia, Hong Kong's Hang Seng fell 2.2 percent to 19,813.98. Japan's Nikkei 225 index, the regional heavyweight, fell 1.3 percent to 13,062.78. South Korea's Kospi lost 1.3 percent to 1,799.01. Australia's S&P/ASX 200 shed 1.5 percent at 4,666.50.

In energy markets, benchmark oil contract for August delivery was down 19 cents to $93.50 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.71 to close at $93.69 in New York on Friday.

In currencies, the euro fell to $1.3100 from $1.3139 late Friday in New York. The dollar rose to 97.94 yen from 97.76 yen.

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June 24 2013 at 12:03 PM Report abuse rate up rate down Reply

The next big crisis is when the US will sell all those bonds to avoid losses. No big surprise that banks will be in trouble from lending at 3% when CDs go 5% and above. Now that the foundation is in place, what do we do about it?

June 24 2013 at 11:35 AM Report abuse +1 rate up rate down Reply

While all of the Obama haters are spewing their lies, I am quietly gathering my money. I sense another buying opportunity coming up.

June 24 2013 at 11:33 AM Report abuse rate up rate down Reply
George Roberge

Obama's recovery stimulaus was a failure. The only thing that saved most corporations was "cost reduction" of people, benefits, spending and producing woth better efficiencies.
The employment figures are still terrible because the manufacturing jobs are gone. Tale a ride in your car around your town and look at all that has bee closed down in the last 25 years. There are a lot o empty,torn down buildings and properties that have been converted into places for Walmarts, Home Deoys Lowes, Targets and other cheap paying employers.
Foreclosures are still a current happening.
We are owned by China due to our debt to them. And what is the worst thing .........Obama talks a big game but is really a Socialist out io destroy, with his ignorance an stupidity.
Let's wake up up in November and only elect people who will work for us.......the US Taxpayer, not the illegal imigrants,and protect us and not the other counties who despise us..

June 24 2013 at 11:11 AM Report abuse -1 rate up rate down Reply

Welcome to the Global Economy............

June 24 2013 at 11:10 AM Report abuse +1 rate up rate down Reply

How about CHINA is mad at the US. They decided to hurt the US in its wallet.

June 24 2013 at 11:08 AM Report abuse +1 rate up rate down Reply

So much for those wanting us in Syria or any other hotspot.

June 24 2013 at 11:05 AM Report abuse +1 rate up rate down Reply

whooo hoo you Wall Street criminals

June 24 2013 at 11:03 AM Report abuse rate up rate down Reply

What ever happened to the 'buy and hold' strategy?

June 24 2013 at 10:52 AM Report abuse +1 rate up rate down Reply
Dunlop Law Firm

Oh, Mr. Obama
They should put you in the slamma
'Cos you just don't give a damna
And as you would say: "Yo mama. . ."

June 24 2013 at 10:35 AM Report abuse +1 rate up rate down Reply