Threat to Chinese Liquidity Chills Asian Markets

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Shares in Asia closed lower Thursday. China's Shanghai Composite Index fell 1.9% to 3,193 and in Hong Kong the Hang Seng Index fell 0.7% to 22,269. In Japan the Nikkei 225 Index lost 0.5%, ending the day at 10,682.A message from China's government instructing banks to pace their lending sent a chill through the markets today. According to Bloomberg, the central bank has raised the interest rates for three-month bills in an effort to dampen the record expansion the country has recently experienced and to rein in overall price increases. This coupled with new restrictions on loans for certain home purchases and the specter of a new property tax was not good news for investors.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Banking shares closed substantially lower: Bank of Communications plunged 3.5%, China Citic Bank dropped 3.4%, Industrial & Commercial Bank of China fell 2.4 and Bank of China Ltd retreated 1.9%. China Minsheng, a privately owned bank, was down 2.7%.

The prospect of shrinking liquidity posed a threat to Chinese carmakers who have enjoyed a surge in sales over the past year; reduced liquidity means less shopping and fewer car sales. General Motors Chinese partner SAIC dropped 4.4%, while VW partner FAW Car lost 4.1%. DongFeng Automobile, maker of cars and light trucks, tumbled 4.8%.

In Hong Kong, car companies also closed lower. Warren Buffett-backed Byd Co. (BYDDF), which makes batteries and environmentally friendly cars, closed down 3.2% and Geely Automobile (GELYF), which is finalizing the purchase of Volvo, lost 2.1%. Nissan Motors (NSANY) slumped 1.1%.

Japanese car companies also lost value, suffering from a rise in the yen against the dollar, which in turn lowers the value of overseas sales once money is brought back into Japan. Toyota Motor, which is hugely dependent on U.S. car sales, fell 1.3% today and Honda fell 1.6%.

Beleaguered Japan Airlines (JALSF) endured another battering today as reports emerged that it may be forced to take a $12.2 billion restructuring charge this year and file for bankruptcy. The airline's stock plunged 9.5% in today's trading. The question remains as to whether Delta will still be interested in buying a stake in the troubled carrier once it has filed for bankruptcy. An increased credit line from Development Bank of Japan will help the company in the short term, but thousands of jobs will be cut as the airline struggles to survive. Not good news for a market desperate to gain ground this decade.
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