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Record-high CPI triggers 4.5% plunge of China stocks

By Li Zengxin (chinadaily.com.cn)
Updated: 2007-09-11 16:47

Analysts said the August CPI statistics release triggered fears of further tightening measures, but it was the accumulated pressures rather than a single factor that had triggered today's deep plunge.

CPI, a barometer of inflation, rose 6.5 percent year-on-year in August after a 5.6 percent increase the previous month, the National Bureau of Statistics said Tuesday in a statement. The growth beats the six-percent expectations most economists had voiced, and is well above the official target of three percent for the whole year.

Meanwhile, the producer product index, a measurement of overall inflation, increased 2.6 percent in August, 0.2 percentage points higher than in July, the bureau said on Monday.

China is to issue 200 billion yuan (US$26.7 billion) of special treasury bonds as the second batch of a planned 1.55 trillion yuan basket to finance the country's new foreign exchange investment firm.

The bonds would be sold to the public, with outstanding terms of more than 10 years, the Ministry of Finance announced on Monday. The first 100 billion yuan bonds will be issued later this month in three batches, while sale of the second half is scheduled for the fourth quarter.

The announcement came two weeks after the ministry issued 600 billion yuan of such bonds targeting the country's commercial banks with an annual interest rate of 4.3 percent. "The bond sale will help ease liquidity, prevent the economy from overheating and strengthen macro-control policy," the ministry said.

"Theoretically, a 200-billion-yuan bond sale to the public could have the same effect on excess liquidity as a 0.5-percentage-point hike in bank reserve requirements," said Wang Guogang, a finance expert at the Chinese Academy of Social Sciences. Issuing in batches and to different buyers would ensure the stability of the financial market and reduce the bond investment risks, Wang said.

The market itself will see a new round of listing waves in the coming weeks. Bank of Beijing said yesterday it will raise as much as 15 billion yuan (US$1.99 billion) in a Shanghai initial public offering (IPO). The bank will sell 1.2 billion shares at 11.5 yuan to 12.5 yuan each, it said in a statement to the Shanghai Stock Exchange.

China Construction Bank (CCB) released A-share issuance prospects and an initial price inquiry announcement today. The China Securities Regulatory Commission (CSRC) last Friday approved the yuan-denominated A-share listing plan of CCB.

CCB will finish its price enquiry on September 11 to 13, launch offline subscription on 14 to 17 and online subscription on September 17, making the second-largest bank one of the "fastest" in issuing shares of the returning red chips.

China Oilfield Service Limited (COSL), currently listed in Hong Kong, was approved by CSRC for its A-share issuance yesterday. China's largest marine oil service provider will issue no more than 820 million shares in the domestic market, accounting for 17 percent of its enlarged capital after the issue.


(For more biz stories, please visit Industry Updates)

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