China's Big Bang

China's Big Bang

China hikes interest rates by 25 bps

The People's Bank of China (PBOC) said today that it will raise the one-year yuan lending rate to 6.56% from 6.31%. The one-year yuan deposit rate will be hiked to 3.50% from 3.25%.

China's central bank said on Wednesday that it would increase the benchmark deposit and lending rates by a quarter percentage point as part of the government's efforts to rein in spiraling inflation.


The People's Bank of China (PBOC) said today that it will raise the one-year yuan lending rate to 6.56% from 6.31%. The one-year yuan deposit rate will be hiked to 3.50% from 3.25%.


This is the third rate increase by PBOC this year and its fifth rate increase in the latest round of monetary tightening.

The Chinese central bank has also hiked banks' reserve requirement ratio (RRR) six times in 2010 and six times so far this year.

China's stocks plunge on rate hike fears

China's benchmark stock index plummeted on Friday, with property and resources stocks bearing the brunt of the selling amid mounting fears that the central bank would hike interest rates further to check spiraling inflation. The Shanghai Composite Index ended down 5.15% to shut shop at 2,985.44, after falling as low as 2,975. It earlier touched a day's high of 3,150 after opening at 3,121. This was the biggest single day fall for the index in more than a year. The CSI 300 Index plunged 6.2% to close at 3,291.83. The Shenzhen Composite index tumbled 6.1% to 1,296.96, after sliding as low as 1,294.44.

China surpasses Japan as No.2 economy

China has passed Japan to become the world's second-largest economy behind the US. The Japanese economy was valued at about US$1.28 trillion in the April to June quarter, slightly below China's figure of US$1.33 trillion. The GDP of the US was roughly US$14 trillion in 2009. GDP expanded at an annualized pace of 0.4% in the three months ended June 30, slowing from a revised 4.4% expansion in the first quarter, the Cabinet Office said in Tokyo. The median estimate of economists was for annual growth of 2.3%.

China's inflation picks up pace in May

Consumer price index (CPI) rose 3.1% in May from a year earlier, while wholesale price index (WPI) rose 7.1%, according to figures from the National Bureau of Statistics. Consumer and producer prices in China accelerated in May with retail inflation outpacing the upper end of the government's target, while bank lending rose faster than expected and retail sales beat estimates. Consumer price index (CPI) rose 3.1% in May from a year earlier, while wholesale price index (WPI) rose 7.1%, according to figures from the National Bureau of Statistics. The results exceeded expectations for a 3% rise in CPI and a 6.9% gain in PPI. The CPI is now exceeding the 3% ceiling of the government's targeted inflation range. However, some analysts expressed doubt the CPI figures would prompt a major tightening response from Beijing.

Other data showed that Chinese banks extended 639.4 billion yuan (US$93.6bn) in new loans for the month, down from the 774 billion yuan extended in April, according to figures published by the People's Bank of China. The lending figure exceeded forecasts for 600 billion yuan in new loans. Separately, money supply as measured by M1 rose 29.9%, easing from April's 31.3%, while the broader M2 metric was up 21%, easing from 21.5% in April, according to data. May industrial-production growth eased to 16.5% from 17.8% in the previous month, missing economists' estimates for 17%. In the year-ago period China's export-oriented economy was just beginning to recover from the collapse in global trade.

Urban fixed-asset investments for the first five months of this year (January-May) eased to 25.9% from 26.1% in the January-April period, though the result was slightly higher than the 25.8% growth anticipated by analysts. But retail sales jumped 18.7% in May, compared with an 18.5% gain in the previous month, today’s data showed.

China surprises...raises bank reserve requirement again

In an unexpected move, China's central bank once again sought to check the unbridled loan growth in that nation by asking banks to increase their reserves for the second time this year. The move once again rattled markets around the globe. From Feb. 25 Chinese banks will be required to set aside an additional 0.5% of deposits as reserves, the People's Bank of China said. After the hike major banks will be required to set aside 16.5% of deposits. Smaller banks are currently required to set aside 14% of deposits. The announcement came after the close of financial markets in Shanghai and on the eve of the week-long Chinese New Year holiday. On January 12, the Chinese central bank had increased banks’ reserve requirements for the first time since June 2008.

Chinese policy makers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles. Policy makers are reining in credit growth after banks extended 19% of this year’s 7.5 trillion yuan (US$1.1 trillion) lending target in January and property prices climbed the most in 21 months. Economic data this week showed property prices across 70 cities surged 9.5% in January, exports climbed and producer-price inflation accelerated. Bank lending of 1.39 trillion yuan topped the total for the previous three months combined.

The central bank said on Feb. 11 that it plans to gradually normalise monetary conditions from a crisis mode after gross domestic product (GDP) grew by 10.7% in the fourth quarter, the fastest pace in two years. The move doesn’t alter the central bank’s moderately loose monetary policy, local media reports cited an unnamed official as saying. Concerns about possible asset bubbles in China, and what action the Beijing government may take to prevent or deflate them, have mounted this year. Oil, copper and European stocks fell on concerns that tighter lending in China will hurt the fragile global recovery.

China surprises with 50 bps hike in reserve ratio

The People's Bank of China (PBOC) increased bank reserve ratios and nudged interest rates higher in the interbank market for the second time in a week in a clear sign that policymakers are trying to cool the rapid economic growth. Authorities in Beijing seem to be concerned about the dangers that inflation poses to the world's fastest-growing major economy. The central bank ordered a boost in the yuan reserve requirement ratio for banks by 50 basis points, or half a percentage point, effective Jan. 18, according to a statement on its Web site. The current ratio is 15.5% for large banks and 13.5% for smaller banks. It was the first increase in the reserve-requirement ratio since Beijing began a massive economic stimulus program in November 2008. The announcement came after the financial markets in China had closed on January 12.

The PBOC didn't give a reason for its decision to raise the reserve ratio, but the move signals that Beijing is increasingly worried that the rapid increase in lending could fuel asset bubbles and raise the risk of inflation. In a statement posted on its Web site, the PBOC said that the proportion of funds that rural credit cooperatives must deposit with the central bank will remain unchanged, to help support spring farming. The announcement follows the Chinese central bank's decision to raise the yield on its one-year bills on January 12 for the first time in five months after a similar move on another benchmark sale on January 7.

China...industrial output strong; prices drop

China said that its industrial production and retail sales accelerated at a faster-than-expected pace, but consumer prices and producer prices fell more than anticipated. Industrial production for October surged 16.1% from a year earlier, outpacing a 15.5% rise forecast by economists, while retail sales climbed 16.2%. The consumer price index (CPI) fell 0.5% from a year-earlier period and the producer price index (PPI) shrank 5.8%, with each dropping more than economists' estimates but still showing an increase from the previous month's data. The growth in urban fixed-asset investments in the first 10 months of this year (January-October 2009) also slowed to 33.1%, easing from the 33.4% growth in the first nine months of 2009. The latest batch of economic reports underscore China’s rapid economic recovery, thanks in part to a huge stimulus package unleashed by the government. Car sales, for instance, have been booming (up by 72.5% in October) because of a cut in sales tax on new vehicles. But as in the US and Europe, experts are wondering what will happen when the stimulus measures end.

China's economy roaring again...may trigger tightening

China’s economy expanded at the fastest pace in a year in the third quarter on the back of the government's massive stimulus spending and record bank lending. Gross domestic product (GDP) grew by 8.9% in the third quarter compared to the same period a year ago, according to data released by the National Bureau of Statistics. For the first nine months of 2009, GDP gained 7.7 percent from a year before. The increase was greater than the 7.9% expansion in the second quarter, and was broadly in line with estimates. A string of other economic data released this week added to growing speculation that Beijing could begin to unwind its unprecedented expansionary policies next year. But they will have to ensure that the withdrawal of record fiscal and monetary stimulus doesn't lead to a slowdown in the world’s third-biggest economy.

Urban fixed-asset investment rose 33.3% in the first three quarters, edging up from 33.0% growth in the first eight months of the year, the Statistics Bureau said. Industrial production in September rose 13.9% year on year, higher than expectations of a 13.3% rise and above August's 12.3% gain. For the first nine month of the year industrial production is up 8.7%. Data also showed that the consumer price index (CPI) fell for an eighth successive month in September from a year-earlier, by 0.8%, but this marked a slowing of deflation after August's 1.2% contraction. The producer price index (PPI) dropped 7.0% for the month, easing from a 7.9% fall in August.

Chinese data points to continued revival

A flood of data released by the Chinese government revealed that the economy remains well on the path to recovery. The data also prompted analysts to predict brighter prospects for one of the world's leading economies. China's industrial output rose 12.3% on year in August, the National Bureau of Statistics said today. The gain was wider than a 10.8% year-on-year gain in July and beat expectations for 12% rise, according to analysts. The major surprise came from the jump in bank lending, despite recent hints from Chinese bank regulators that the steep growth in new bank loans would be scaled back in the second half of the year. The People's Bank of China said that banks issued 410.4 billion yuan (US$60bn) in new loans during the month, up from 355.9bn yuan in July. That far exceeded estimates of lending shrinking to 320 billion yuan. China's broad money supply as measured by M2 expanded 28.5% from a year earlier, in line with consensus estimates for a rise of 28.4%.

China's consumer price index (CPI) eased 1.2% year on year, roughly in line with expectations for a 1.3% drop forecast by analysts. The producer price index (PPI) was down 7.9%, matching the poll's forecast. Declining prices gives Chinese central bank more room to keep interest rates at a four-year low. Retail sales rose 15.4% year on year, after rising 15.2% in July, the statistics bureau said today. The gain in retail sales was the biggest for the year after accounting for seasonal distortions caused by the lunar new year holiday. Urban fixed-asset investment for the January-August 2009 period rose 33.0% year on year, picking up for a 32.9% rise in the January-July period. Investment in real estate jumped 34.6% in August, up from a 19.6% rise in July. That compared to a 9.9% rise in property investment in the first half of 2009.

In China, the quickening expansion follows a 4 trillion yuan stimulus package, record lending and a rebound in property investment and sales that have countered a slump in the nation’s exports. Economists anticipate China’s GDP growth will accelerate to a 9.5% pace next year after an 8.3% rate in 2009, according to economists.

China's forex reserve tops US$2 trillion

China's foreign exchange reserve swelled at a record pace in the second quarter to top the US$2 trillion milestone for the first time. The reserve rose by a record US$178bn in the second quarter to US$2.132 trillion, the People’s Bank of China said. That dwarfs a US$7.7bn gain in the previous three months. The increase came amid strong signs of economic recovery in China, spurred by the government's stimulus package and a strong growth in bank lending in the first six months of the year. Property and stock prices have also climbed over the last few months. Data released by the central bank today also showed that M2, the broadest measure of money supply, rose by as much as 28.5% in June from the year-earlier period. Separately, China's foreign currency regulator said today that it will ease curbs on outflows of capital. The State Administration of Foreign Exchange will expand the sources of capital Chinese can use to fund outbound spending and let companies send investment funds overseas without prior approval, it said.

Chinese growth slides on global slump

The global economic slump has taken a toll on the Chinese economy, with its gross domestic product (GDP) expanding at the slowest pace in seven years, the government said. The latest sign of slowdown in the world's fastest growing major economy will increase pressure on the Chinese government to announce more stimulus measures, including further rate cuts. China's economy expanded 6.8% in the fourth quarter, the statistics bureau in Beijing said today. That matched the median estimate of economists, but was much slower than the 9% gain in the previous three months ended September. GDP in the whole of 2008 stood at 9% compared with the 13% expansion in 2007 that pushed China past Germany to become the world’s third-biggest economy. Urban fixed-asset investment rose 26.1% last year, the data showed, compared with a 26.8% increase in the first 11 months.

China`s key inflation hits 17-month low

China's key inflation rate cooled to a 17-month low, raising the prospects of further government steps, including interest-rate cuts, to bolster growth in the world's fourth-biggest economy amid a worldwide slowdown. Consumer price inflation (CPI) increased at a 4% pace in October from a year ago period, the National Bureau of Statistics said on Nov 11, after gaining 4.6% in September. October's inflation was less than the 4.2% median estimate and has halved from February's 12-year high of 8.7%. It has slowed for six straight months on improved food supplies and falling prices for energy and commodities. Food prices surged 8.5%, the smallest increase since May 2007.

China threatens US dollar

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".


A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters

Citigroup - Consumption Function - China’s Performance, India’s Potential - Retailing

Consumption Function - China’s Performance, India’s Potential Retailing

Citigroup - Week Ahead

China. We expect the Chinese government may introduce more policy measures to shrink trade surplus, but it will take a while to set in

India. Similar to trends in recent months, we expect industrial production growth to remain in the double-digit range

Korea. Steady job growth likely to continue

Malaysia. The export number suggests a further consolidation of the industrial production trend

Philippines. Export growth in February may correct to 12% yoy, following slower electronic exports

Singapore. 1Q07 GDP flash estimate will likely come in at about 6%, as manufacturing holds up despite tech slump

Taiwan. Exports likely continued to decelerate in March on weak tech demand, while imports likely bounced back on rising energy imports

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Stratfor - Global Market Brief: China's Engineered Drop

By George Friedman

China's Shanghai Composite Index tumbled 8.84 percent Feb. 27, its largest fall in a decade. Its sister index, the Shenzhen Composite Index, fell 8.54 percent. The size of the drop in China is not significant in and of itself. On a number of occasions during the past year, the Shanghai Stock Exchange has experienced 5 percent plus daily reductions, and it has already boomed and busted once this decade.

But that hardly means the development is insignificant. The fall is important both for how it happened and what it triggered.

How it Happened

This was an engineered drop.

The Chinese government has become increasingly concerned about levels of investment in its economy or, more accurately, the sheer amount of money that is chasing projects. State firms with limitless access to subsidized capital from state banks have used that access to launch thousands of nonprofitable firms. This glut in "investment" money drives up the cost of commodities and adds industrial capacity without actually producing anything of much use, making life more difficult for the average Chinese and unduly harming relations with foreign powers that face a glut of otherwise noncompetitive Chinese goods.

This penchant for overinvestment has now spread to the stock market in two ways. First, the same politically connected government officials who started dud companies are taking out loans to buy shares, or are using shares they already hold as collateral for new loans. Second, ordinary Chinese citizens have started borrowing -- sometimes against their homes -- in order to play the market. In January, the number of total traders on the Chinese exchanges grew by 1.38 million, an increase of 134 percent from a month earlier, while stock turnover was up 700 percent from a year earlier.

The net result is an absurd stock surge with no basis in fundamentals. At present, some Chinese banks now have price-to-earnings ratios higher than financial behemoths such as Deutsche Bank and Chase, despite deplorable management and a history of highly questionable lending policies.

For the past few months, the government has been working to drive down this speculative investing. On Feb. 26, China's State Council launched a new "special task force" that accurately could be referred to as the "get-those-idiots-to-stop-borrowing-to-gamble-on-the-stock-exchanges" team. Its express goal is to get the Chinese domestic security brokers to lay off such speculative decision-making, while also putting a crimp in the source of the subsidized capital.

Day one started by the script, and Beijing is likely quite pleased with the way things are going (or at least it was until its actions unintentionally triggered a global meltdown). Also, since the Shanghai exchange is actually still up 3 percent for the past week despite suffering its largest drop in a decade, the State Council probably hopes for more drops in the days ahead.

What it Triggered

But the rest of the world took a different lesson. Why the Chinese stock crash occurred was unimportant to the outside world, only that it did -- and that it affected everyone else.

For the first time, China has become the trendsetter in the global stock community. Normally, the U.S. exchanges -- especially the S&P 500 index and the Dow Jones Industrial Average -- set the tone for global trading patterns. Not on Feb. 27. This time, China led Asia to a wretched day. The wider the contagion spread, the more margin calls were forced to be called in. (If an account's value falls below a minimum required level, the broker will issue a margin call for the account holder to either deposit more cash or sell securities to fix the problem.)

As the drops snowballed, Europe filed in dutifully behind, mixing the China malaise with its own nervousness about overextended markets in Central Europe and the former Soviet Union. By the time markets opened in the United States -- where investors already were fretting about the subprime mortgage markets -- the only question remaining was how far U.S. markets would descend. In the end, the Dow dropped by the most since the fall triggered by the 9/11 attacks.

So why has this not happened before now? As China's market capitalization has increased, its links to the global system have increased apace. These links have developed very quickly, and with few controls. The Shanghai exchange, for example, more than tripled in total value in 2006 to more than $900 billion -- and much of the rapid-fire initial public offerings (IPOs) of Chinese banks on the Hong Kong and other international exchanges are not included in that little factoid. Indeed, China's mainland exchanges are only the tip of the iceberg -- and they certainly do not include foreign firms that are heavily invested in the mainland.

Two years ago, China's market capitalization was too small for its problems to impact the global system. Now, between ridiculous foreign subscriptions to IPOs, irresponsible corporate policies and irrational valuations all around, that capitalization is to a level -- around $1.3 trillion -- where its integration with the global system via funds and margins makes China a sizable chunk of the international financial landscape. The insulation that once protected international exchanges from Chinese policies is gone, which makes the international system more vulnerable to Chinese crashes.

Feb. 28 and Beyond

Follow-on crashes can come from one of three places.

First, the Chinese believe their exchanges are massively overvalued (hence the engineered crash). They will do this again, and are not (yet) particularly concerned with the international consequences. China planned to dampen its own stock market, not the world's markets. Along with the rest of the world, Beijing did not expect the contagion effect to be so extreme. Yet, for now at least, China's own exchanges are its primary concern, and it will act according to that belief.

Second, everyone else now is going to chew on the fact that Beijing did this intentionally. They will either agree with the Chinese that the exchanges are overvalued and that additional measures are needed, or they will be terrified that Beijing did this intentionally and not care about the reasons. Whether what is sold is a domestic Chinese firm or a foreign firm invested in China does not matter much. Neither does it matter if the stock is on an exchange in China or abroad. Either way, the reaction will be the same: Sell.

Third, trading in 800 of the 1,400 stocks on the Shanghai exchange was suspended during the sudden drops Feb. 27; they have a lot farther to fall, even without any engineered drops caused by panicky selling.

Considering the flaws on which the Chinese system is based, this certainly will not be the last engineered drop. In theory, the move will make foreign investors far more cautious before diving into the Chinese system, but as longtime Stratfor readers know, we have been wrong on the timing of that particular development before.

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Nomura - STRATEGY: IF CHINA SNEEZES, DOES THE WORLD CATCH A COLD?

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Asian Stocks Add to Global Rout After China's Slump; BHP Drops

Asian stocks fell the most in more than eight months, extending a global selloff sparked by the biggest plunge in Chinese shares in a decade. BHP Billiton Ltd. and Posco led declines.

In the U.S, the Dow Jones Industrial Average dropped as much as 546 points, the most since the first trading day after the Sept. 11, 2001, terrorist attacks. Chinese stocks yesterday fell the most since 1997 after the government took measures to crack down on excess speculation that had driven shares to records.

``This will reverberate in Asian markets again today,'' said Shane Oliver, who helps manage about $64 billion at AMP Ltd. in Sydney. ``China's market has been poised for a correction for some time, which has made other Asian markets vulnerable too.''

The Morgan Stanley Capital International Asia-Pacific Index fell 3.3 percent to 143.80 at 11.30 a.m. in Tokyo after rising to a record yesterday. The gauge was set for its biggest drop since June 13. Chinese markets opened down, and swung between gains and losses.

Japan's Nikkei 225 Stock Average slumped 3.6 percent, set for the biggest drop since June 13. Toyota Motor Co. added to declines after the yen strengthened against the dollar in New York, eroding the value of exporters' sales.

Singapore's Straits Times Index plunged 5.3 percent while Malaysia's Kuala Lumpur composite Index tumbled 8.1 percent, leading declines elsewhere in the region. Stocks in China and Hong Kong may also slide for a second day, after the American depositary receipts of China Mobile Ltd., the world's largest mobile-phone operator by users, slumped 10 percent.

The Dow fell 3.3 percent while the Standard & Poor's 500 Index lost 3.5 percent, wiping out their year-to-date gains. The Nasdaq Composite Index slid 3.9 percent, its steepest drop since July 2002. Europe's Dow Jones Stoxx 600 Index slid 3 percent and emerging markets dropped.

China Tumbles

Shares also fell after U.S. durable goods orders fell 7.8 percent in January, reflecting the biggest slide in business equipment demand in three years, according to figures released yesterday by the Commerce Department in Washington.

China's Shanghai and Shenzhen 300 Index yesterday slumped 9.2 percent, also from a record. It had jumped 13 percent in the previous six sessions. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, plunged 8.8 percent, the steepest drop since Feb. 18, 1997. The rout wiped out $107.8 billion from the market value of China's companies, which had doubled in the past year.

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

Commodities Hit

China's government has introduced several measures over the past year to calm the stock market. Banks were urged to stop lending money for stock investments and to recall outstanding loans, the China Banking Regulatory Commission said Dec. 31. The People's Bank of China, the central bank, ordered banks to boost reserves four times in the past year to reduce money available for investment.

``With capital flows being so global it's hard for action in a large country like China not to have an effect on other markets,'' said Amanda Smith, who helps manage $6 billion at ING New Zealand Ltd. in Auckland.

BHP, the world's biggest mining company by market value and production, lost 5 percent to A$27.40. Fiscal first-half sales to China rose 36 percent to $4 billion from a year earlier, the company said. Rio Tinto Group, the second-biggest by market value and third by production, dropped 3.9 percent to A$76.49. It generated 16 percent of its total sales from China in 2006.

`Worry'

``Commodities stocks are the losers because whenever something like this happens, investors worry about the implications for global growth,'' said Tom Murphy, who manages about $1 billion in Asian assets at Deutsche Bank AG in Sydney.

Posco, the world's third-largest steelmaker, slumped 4.3 percent to 356,500 won. China was the company's largest market after South Korea in 2005.

Korea Zinc Co., the world's biggest smelter of the metal, fell 3.8 percent to 90,600 won. Nippon Mining Holdings Inc., Japan's biggest copper producer, dropped 6.8 percent to 972 yen.

Toyota, Japan's largest automaker, dropped 4.1 percent to 8,000 yen. Matsushita Electric Industrial Co., the world's No. 1 maker of consumer electronics, lost 3.5 percent to 2,380 yen, while Sony Corp., the second largest, tumbled 6 percent to 6,130 yen.

The yen rose the most in more than 19 months against the dollar amid a sell-off in U.S. stocks and as investors shunned emerging-market assets, prompting an unwinding of trades betting on a decline in the Japanese currency.

The currency rose 2.3 percent to 117.93 against the dollar late in New York yesterday, the biggest gain since July 2005. It was little changed at 118.15 recently.

China ADRs Slump

``China's drop yesterday shocked risk-money investors, as did the yen's climb,'' said Mitsushige Akino, who oversees about $468 million in assets at Ichiyoshi Investment Management Co. in Tokyo. ``Stocks should fall across the board.''

China Mobile's ADRs fell 10 percent to $44.16 in New York. Its Hong Kong-traded stock yesterday slipped 2.9 percent to HK$74.90. ADRs of China Life Insurance Co., the country's biggest life insurer, fell 8.8 percent to $38.48. The stock fell 3.8 percent to HK$21.65 in Hong Kong yesterday and lost 9 percent to 33.89 yuan on the mainland.

Brilliance China Automotive Holdings Ltd., the Chinese partner of Bayerische Motoren Werke AG, tumbled 12 percent to $24.30 in New York. The stock fell 6.9 percent in Hong Kong yesterday.

Hong Kong's Hang Seng Index yesterday lost 1.8 percent. The Hang Seng China Enterprises Index, which tracks the so-called H shares of 37 mainland companies, fell 3.1 percent.

``It's not just a one-day drop,'' said Andy Mantel, managing director of Pacific Sun Investment Management in Hong Kong. ``There's more room in the downside. My strategy is to increase in cash and shorts.''

China stocks open down but quickly recover

China's main stock index opened lower on Wednesday but recovered quickly and moved into positive territory as heavily weighted financial blue chips climbed.

The benchmark Shanghai Composite Index (.SSEC: Quote, Profile, Research) opened down 1.34 percent, but after five minutes stood 1.18 percent higher at 2,804.454 points.

On Tuesday the market plunged 8.84 percent, its biggest fall in a decade, in a sell-off that jolted global financial markets.

Analysts said Chinese investors remained nervous after Tuesday's rout but recently created funds had entered the market to accumulate shares for long-term investment.

Officials denied various rumors that fueled Tuesday's tumble, including talk that China might impose a stock capital gains tax and that the head of the securities regulator might step down.

In addition, investors believe the government, which wants to list big state firms on the market this year, will not permit a collapse that could endanger those plans, traders said.

Many see good technical support for the index at the February low of 2,541, from which it bounced sharply early in the month.

"The situation is not too bad. The market should stay in a range of 2,500 to 3,000 for a while," said Zhang Qi, analyst at Haitong Securities, adding that Tuesday's drop was probably not the start of a bear market.