By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-12-17 17:33

Concerns over further monetary tightening led Chinese investors to continue unloading financial and property shares on Monday, pushing down major stock indices.

The benchmark Shanghai Composite Index tumbled 2.62 percent to close at 4,876.76 points, marking a loss of more than 25 percent since peaking in mid-October.

In developed markets, a decrease of 20 percent or more within a 12-month period can be called a bearish market. However, Chinese analysts said as China is an emerging market, it should be held to different standards.

Others indicators all fell. The smaller Shenzhen Composite Index fell 0.94 percent to 1,319.20, while the CSI 300 Index of major companies on the two bourses dropped 2.42 percent to 4,857.28.

Analysts blamed the decline on investors' worries about further curbs on bank credit and other monetary tightening measures. The country's top leaders have made curbing inflation and preventing the economy from overheating priorities for next year.

Inflation hit an 11-year high of 6.9 percent in November, far above the central bank's target of three percent. In the first three quarters, the world's fourth largest economy grew 11.5 percent and is on track to post its fifth consecutive year of double-digit growth.

To keep the rising living costs in check and prevent the economy from overheating, the top leaders pledged earlier this month to shift to a "tight" monetary policy from a decade-old "prudent" one.

Following the policy change, the central bank announced a one percent hike in the bank reserve requirement ratio. That compared with the 0.5 percent increase in the previous nine rises so far this year, indicating the potential strength of future tightening measures.

The central bank has also demanded commercial banks to cap their outstanding loans before the end of the year. These measures will create a dent in the profitability of the banks, analysts said. Property firms, a heavy borrower, will also find it harder to get financing from the bank, in the face of tighter credit, they said.

Amid those concerns, banking shares plummeted. The Industrial and Commercial Bank of China tumbled 4.01 percent to close at 7.67 yuan per share, followed by a 3.97 percent decrease in China Construction Bank to 9.43 yuan.

The gloomy sentiment also hurt insurance shares, with China Life dropping 6.92 percent and China Ping An falling 6.74 percent.

Property shares were hit hard as well. China Vanke, the country's biggest publicly traded property developer plummeted 9.52 percent to 27.1 yuan, compared with a 7.59 percent decline in China Merchants Property to 51.1 yuan.

Slumps in the global market were also a factor that contributed to the sell-off. On Friday, the Dow Jones Industrial Average fell 1.32 percent on inflation concerns, which reduced the odds for further rate cuts by the Federal Reserve.

That prompted a 3.51 percent fall in the Hang Seng Index in Hong Kong and a 0.14 percent drop in the Nikkei index in Tokyo.