Stocks, currencies and commodity prices slumped in Asia after China's government called on some banks to stop lending, halted building of a $1.3 billion steel mill and added restrictions on new projects to slow the economy. ``The focus of the current adjustments is to rein in investment,'' Ma Kai, head of the State Development and Reform Commission, said on the agency's Web site today. A surge in spending this year threatens to ``trigger a series of economic and social problems.'' China's economy expanded at a faster-than-expected 9.7 percent in the first quarter, driven by a 43 percent gain in fixed-asset investment, almost double last year's rate. The government is reverting to central planning edicts to slow the world's sixth-largest economy and reduce inflation after monetary policy changes failed, according to economists such as Andy Xie. ``Banning people from lending is what happened in 1994,'' said Xie, the Hong Kong-based chief economist at Morgan Stanley Asia Ltd. ``Because local banks, governments and property developers didn't care about the cost of capital, it's now come down to quantity measures.''
Stocks Fall
Asian stocks fell, led by commodity producers such as PetroChina Co. Australia's BHP Billiton Ltd. and South Korea's Posco. The Morgan Stanley Capital International Asia-Pacific ex- Japan Index, which tracks 545 stocks in the region, slumped 1.2 percent to 93.13 at 13:45 p.m. in Hong Kong. BHP, the world's biggest miner, shed 3.5 percent to A$11.50. Posco, Korea's biggest steelmaker, fell 5.4 percent to 147,500 won. PetroChina, the nation's biggest oil producer, fell 4.2 percent to HK$3.40. Aluminum Corp. of China, the nation's biggest aluminum producer, fell 10 percent to HK$4.475.
Economic expansion in ``the whole of Asia is hinging more on China's growth rather than Western growth,'' said Stuart Goh, who helps manage $117 million at Pacific Asset Management Ltd. in Singapore. ``If they're going to slow it down, of course we're all going to get hurt.'' Copper futures extended yesterday's 5 percent loss. Copper for July delivery on the Comex division of the New York Mercantile Exchange fell 0.5 percent at $1.1705 a pound. The contract has fallen 16 percent from its eight-year closing high of $1.3985 on March 1.
Currencies Slump
The South Korean won dropped 1 percent to 1,168.20 against the dollar as of 2 p.m. Seoul time, its largest decline since Feb. 19, according to Seoul Money Brokerage Services Ltd. The Taiwan dollar fell as much as 0.5 percent to NT$33.26, its weakest since March 29, according to Taipei Forex Inc. ``It's a very short step to go from selling commodities to selling currencies of countries which are very reliant on China for their growth -- that is Taiwan and Korea in particular,'' said David Simmonds, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. China's government stopped the construction of a 10.5 billion yuan ($1.3 billion) steel plant in the eastern province of Jiangsu, claiming it was being built with illegally obtained land and loans, the state-owned Xinhua news agency reported. The Jiangsu Tieben Iron Co.'s project was stopped after China's State Council, or cabinet, sent a team to investigate.
Lending Curbs
China People's Bank of China Vice Governor Wu Xiaoling said in an interview yesterday she hoped growth in the world's largest copper-consuming country would slow to less than 8 percent this year from a six-year high of 9.1 percent in 2003. Wu had appealed for ``cooperation'' from the nation's banks in curbing credit. China has in the past year raised the banks' reserve ratios, restricted lending to the steel, cement and aluminum industries and banned new construction projects. Those measures failed to stop a 173 percent surge in steel investments. In the latest move, China's Bank of Communications Ltd., Shenzhen Development Bank and Shanghai Pudong Development Bank said they halted lending until May 1, suggesting the government may announce tighter loan policies. The banks, called ``joint- stock'' banks because they have adopted a shareholding structure, often lend to regional-government projects. China's big four state banks, including Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China, haven't halted loans but are also restricting lending. They accounted for 56 percent of total lending at the end of 2003.
Property Developers
``Since last year, we have already been told to restrict lending to property developers,'' said Zhao Lianmeng, a loan officer at the Bank of China in Shanghai. ``The ban on lending on joint-stock banks seems to benefit us as quite a few companies who cannot get loans from them may turn to us these days.'' China this month ordered commercial banks to set aside 7.5 percent of their deposits as reserves, up from 7 percent, reducing the amount banks have for lending. The new approach of credit controls resembles former Premier Zhu Rongji's crackdown in 1994, when inflation was riding at an annual rate of 24 percent. Chinese Premier Wen Jiabao, who replaced Zhu last year, said in an interview with news agency the government plans to take ``forceful'' measures to cool the economy, . He also said sudden changes in the nation's currency regime would threaten global growth.
``The government seems to be going back to the old ways,'' said Li Mingliang, an analyst at Haitong Securities Co., in Shanghai. ///www.bloomberg.com