China's two major stock markets declined about 3 per cent yesterday on worries the new credit restrictions would inhibit investment. As well, the markets were hit by rumours and unconfirmed media reports that China's central bank could increase interest rates by 27 basis points as soon as tomorrow, following the release of GDP data.

Scotia Capital's Mr. Liu said the rumour is unlikely to be true, as "the tightening pace will be deemed to be too quick."

China's central bank hiked banks' reserve ratio earlier this week, increasing the amount of capital they had to have on hand to make loans. China also boosted interest rates on second home mortgages and increased the down payment on second homes to 40 per cent of the purchase price.

"The reactions in the Chinese stock market and property market so far should satisfy the Chinese authorities already, at least in the near term," Mr. Liu said.

China suffered along with the global economy during the worldwide downturn, but it has bounced back faster than economies elsewhere. Beijing hopes cooling the pace of lending will keep its economy growing without creating inflation and overheating. Other nations are counting on that growth and a healthy demand for their goods for their own recoveries.

Chinese regulators are paying special attention to loans for local government projects and real estate. All banks have been ordered to "heighten their vigilance" against credit risk, the regulatory commission's Mr. Liu said.

By most measures, Chinese banks are among the world's healthiest at the moment. Not only are they flush with cash, but their bad loans, known as non-performing loans, stand at just 1.6 per cent.

But with China's economic growth pegged at a blistering 8 per cent after a torrent of lending, banks will see a rise in bad loans in the coming years, though losses are expected to be manageable, said Alistair Scarff, head of Asia financial institutions research for Merrill Lynch in Hong Kong.

Smaller commercial banks in China's cities are likely more at risk than are the country's heavyweight institutions, he said.

At the same time, China's modern banking system has yet to be fully tested.

China's banks have never faced a recession or big losses as profit-driven companies answerable to shareholders. What's more, advanced risk management systems and lending practices are a relatively new arrival at some banks.

"You have a banking system that has never really been through a down cycle," Scarff said. "This is the first time they're really facing these challenges as separate entities and modern financial institutions."

Not this article. in one article, it says CBRC did not instruct Bank to stop lending but to exercise discretion..... 

http://online.wsj.com/article/BT-CO-20100127-703581.html?mod=WSJ_latestheadlines

A news department official at the China Banking Regulatory Commission told Dow Jones Newswires that the regulator has always urged banks to recall loans that were extended through "irregular" ways.

Yes, agreed, all back to square one, from profit to loss.

Im afraid i will faintz tomw if again red red.

Since 2007, it has been like that lor......Jan free fall.  Because PRC like to announcement a U-turn rule causing panic.

Aiyo eh...so many traps eh...so when market rebounce then sell into strength eh?

Where & when will the market stop selling eh?

boyikao3      ( Date: 27-Jan-2010 20:58) Posted: Have you every heard of Bear Trap ? AKA Dead Cat Bounce ? risktaker      ( Date: 27-Jan-2010 18:47) Posted: haha you ever hear of bull trap ? :P

Please note that ADX is rising, DIs -vely placed.