Shanghai (AsiaNews/Agencies) – The Shanghai Composite Index dived 6.74 per cent on Monday to a three-month closing low, tumbling 21.8 per cent for August, its second-biggest monthly loss in 15 years. This comes after it rallied 60 per cent in the first six months of this year. The plunge was even faster if we consider that the index peaked on 4 August, dropping 23 per cent thereafter.

Today’s losses also touched big state-owned companies like China Petroleum & Chemical Corp dropped, a leading refiner, which lost more than 10 per cent, partly because of concerns the government might keep fuel prices on a even keel despite rising oil prices, which would force the company to bear the losses. 

Analysts note that in August China’s banking authorities tightened lending, fearing losses to market and other types of speculation.

This month new loans in mainland could fall to 300 billion yuan (US$ 40 billion), but Beijing-based Caijing magazine reported that China the decline could go as low as 200 billion yuan, against 355.9 billion yuan in July and 1.53 trillion yuan in June.

China’s big banks, the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank, and the Agricultural Bank of China, lent less than 100 billion yuan in the first 25 days of August, thus the bulk of new lending came from medium- and small-sized banks, which are more vulnerable to liquidity problems in case of bad loans.

Economists note that the mainland economy expanded 7.9 per cent in the second quarter after logging growth of 6.1 per cent in the first quarter, largely underpinned by a surge in new lending rather than an actual surge in consumption and especially exports, the economy’s main engine.

Opinions diverge over the immediate future. Some believe the negative trend is at an end. Economist Howard Wang thinks a further slide is probable, unless “a very strong set of macro numbers in August” or “stronger statements from central authorities” emerge.

“It’s panic selling we saw today,” said Leo Gao, reflecting investors’ readiness to sell at the first sign of weakness in stocks.

Ba Shusong, deputy director of the State Council’s Development Research Center said 28 August that the nation’s economic growth may start to slow in the second quarter of next year as the impact of government stimulus policies diminishes.

“Investors believe it is impossible to make a profit from market trading in the short-term,” said Zhai Peng, a securities analyst in Shanghai. And thus fewer of them will take risks trading stocks.