Asian markets: Warning by Chinese regulator sends banking, retail stocks plummeting

Shares in Asia headed south Tuesday. In China, the Shanghai Composite index plunged 3.5% to 3,224, its largest drop in nearly three months. In Hong Kong, the Hang Seng Index fell 1.5% to end the day at 22,423 and in Japan, the Nikkei Index lost 1% to close at 9,402.

Banking shares suffered losses today as China's banking regulator warned lenders that they must comply with rules requiring them to have adequate amounts of cash held against the loans they have made. The Wall Street Journal reports that in the first six months of this year, Chinese banks have issued loans worth $1.1 trillion -- an amount equal to half of China's GDP for the same period -- and that some have fallen below the required capital adequacy rates, having lent enormous amounts of money, which have helped speed the growth of the Chinese economy.
As Chinese banks scrambled to come up with plans to raise funds, their share prices tumbled. Bank of China (BACHF), which may have to raise as much as $14.6 billion, lost 2.3%. Bank of Communications (BKFCF) plunged 3.1%, China Construction Bank (CICHF) dropped 2.9% and Industrial & Commercial Bank of China (IDCBY) slid 2.7%.

Fears that banks may tighten up on lending could stop many Chinese from making big purchases. Chinese carmakers hit the skids with Dongan Heibao plunging 8.2%, Chongqing Changan Automobile nose diving 6.1% and Beiqi Foton Motor shedding 6%.

Consumer product companies closed lower as less liquidity could translate into less shopping. Appliance maker TCL Corp. plunged 6.6%, refrigerator company Qingdao Haier lost 6%, and even Warren Buffett's favorite suit maker Dalian Dayang Trands plummeted 7.3%.

In Tokyo, major banks also lost value: Sumitomo Mitsui Financial Group (SMFJY) lost 4.4% and Mitsubishi UFJ Financial Group (MTU) fell 2.8%. Both banks have lent money to ailing Japan Airlines (JALSY), which today plunged to a record low after losing 8.4%.

In Hong Kong, banks also led the drop with Hong Kong-listed shares following their Chinese-listed counterparts. Bank of China (BACHF) slid 4%, China Construction Bank (CICHF) fell 3.4%, Industrial & Commercial Bank of China (IDCBY) lost 1.7% and and Bank of Communications (BKFCF) dropped 2.5%.

Hong Kong property developers were also damaged by the specter of tighter lending policies. Glorious Property, which has just purchased two enormous parcels of land for commercial development in Shanghai's main business district, tumbled 5.4%. Hang Lung Properties (HLPPY), which specializes in luxury residential buildings, dipped 3.4%, while New World Development (NDVLY), which owns a popular mall in Kowloon, lost 2.6%. Henderson Land (HLDVF) shed 2.3%.

If credit begins to dry up, we may soon see how sustainable the speedy Asian recovery really is.
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