China's Stockmarket Tumbles Lower

Chinese shares slid to a 20-month low today, capping the sixth straight week of bad news for the troubled stockmarket.

Markets across Asia fell in the wake of Wall Street's overnight plunge, but the decline in China reinforced pessimism among investors who have seen the benchmark Shanghai Composite Index fall by more than 63% from its October peak.

It closed the day down 74.96 points, or 3.2%, at 2,202.45 and analysts have already warned it is likely to tumble further amid fears of an economic slowdown. It has declined by 8.13% this week alone.

"The recent continuous declines caused panic," said Zhu Kangping, a strategist at Shenyin Wanguo Securities in Shanghai. "Today most securities shares slumped over 5% as investors feel hopeless about the market."

In Shenzhen, the market fell 2.8%, or 209.4 points, to 7,264.2. Losses outnumbered gains by 827-47 in Shanghai and 702-32 in Shenzhen, with refiners, property firms and banks among the biggest losers.

PetroChina, the Shanghai index's biggest traded share, fell 4.2% to 11.94 yuan while Sinopec, dropped 1.59% to 9.88 yuan.

Analysts agree that the stockmarket was vastly overvalued last autumn as speculators piled in and that a correction was needed. But it has fallen further and faster than most anticipated, at a time when the Chinese economy faces a host of problems.

While consumer inflation has fallen from a 12-year high this spring, producer price inflation has shot up - an additional headache for exporters struggling with the appreciation of the yuan and the global credit crunch.

Some economists have called for tax cuts to boost growth despite government hopes that growth would fall back. Growth has run at 10.8% annually over the last five years.

Earlier this week, Gao Lingzhi, strategist at Great Wall Securities, predicted that the index would fall to around 1,750 eventually, reflecting expectations that profit growth at listed companies might fall to zero next year from a forecast 16% this year.

"The index dropping is becoming a trend - the turnover drops, and prices drop, and the index drops," said Zhang Qi, analyst at Shanghai Haitong Securities.

But he added: "Being at 6000 points during October last year just wasn't sustainable, and these low prices imply that in the short term it might stay like this.

"But in three to five years there will be value for investment, as it is becoming closer to overseas markets."