Chinese Inflation Drags Asian Shares Lower

Asian markets plunged Thursday. In China the Shanghai Composite Index tumbled 2.9% to 2,678 and in Hong Kong the Hang Seng Index fell 1.7% to 24,004. Japan's Nikkei 225 Index lost 1.1% to end the day at 10,437.

Hopes that Chinese inflation had cooled last month were dashed when data released today showed that consumer prices were probably up 6% and the inflation rate hit 4.6%. China Daily reports steep climbs in the cost of household staples like green peppers, cucumbers and eggplants, which all rose by 10% or more. Prices for meat were less dramatically affected, with pork rising 0.2% and mutton up 0.7%. These higher prices could be blamed on the expense of growing vegetables during the cold winter months or the drought in the north where most of the country's wheat is grown, but that doesn't explain the hike in factory-produced goods. Whatever the reason, investors didn't like it.

Shares in Chinese food producers tumbled with Beijing Shunxin Agriculture, which grows fruit and vegetables, raises pigs and also has its own winery, slumped 5.8%, Bright Dairy & Food slid 4.3% and Heilongjiang Agriculture fell 3.2%. SunOpta, which caters to the growing number of wealthier Chinese searching for organic foods, dropped 4.7%.

Shanghai to Try Taxing "Large" Homes

Chinese property companies suffered huge losses in today's jittery market. The situation wasn't helped by news that homes in Shanghai will be taxed according to size as a trial as lawmakers desperately pursue measures to cool the market. "The aim of the trial program is to curb speculation and protect people's interests," the mayor of Shanghai told China.org.cn. The taxes will be levied on larger homes, but keep in mind that large in China is quite a different concept to large in America. Bloomberg Businessweek reports that homes bigger than 60 square meters (645 square feet) will have to cough up. Affected properties are also sure to include palatial McMansions recently erected for the nouveau riche. Today Poly Real Estate sank 6.3%, China Vanke fell 4.7% and Gemdale slumped 4%.

Other big losers in Shanghai included airlines. China Southern Airlines tumbled 7.5% -- down about 25% from its high in November. Air China tanked 6.2% and China Eastern Airlines gave up 5.3%. Hainan Airlines, which recently got a boost from the island destination's new status as a tax-free shopping zone, plunged 6.1% Some analysts were again blaming the weather and heavy snows, which grounded flights in Shanghai even last night.

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Chalco Goes After Rare Earth Metals

Gainers in China included Aluminum Corp. of China, which surged 4.3% on reports that it plans to begin mining for highly sought after rare earth minerals, but other commodities tanked with Jiangxi Copper losing 5.9%, Zijin Mining dropping 4.2% and Maanshan Iron & Steel falling 3.4%.

In Hong Kong it was much the same story with Hong Kong-listed shares mirroring their Chinese counterparts. Banks also plunged with Bank of China tumbling 2.6%, China Construction Bank sinking 2.4% and Industrial & Commercial Bank of China and Agricultural Bank of China both losing 1.5%. HSBC fell 2.1%.

While the bad weather shaved 3.7% off of Cathay Pacific shares as flights heading to snow-bound Shanghai were called off, coal-based energy companies, which usually rise when cold weather hits, also fell. China Shenhua plunged 4% and China Coal lost 2.5%. PetroChina, an oil company, lost 2.2% and Cnooc dipped 2%.

Japanese shares were hit hard by the fall in oil and metal prices, paired with a drop in U.S. housing starts. Japan is heavily dependent on exports to places like America to help revitalize its economy and gloomy news overseas is no help. Today electronics makers dragged the index lower. Nintendo, the maker of the popular Wii game console, gave up 4.2%, Canon fell 2.3%, and Sony declined 1.1%.

Japanese car makers headed south. Isuzu slumped 2.2%, Nissan fell 1.7% and Mazda and Toyota both declining 1.2%. And companies making car parts followed suit with Jtekt losing 2.9%, Alps, a maker of electronic systems for cars dropping 2% and Bridgestone down 2.1%.