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| China stocks enter bear market amid credit fears | China stocks enter bear market amid credit fears |
| (35 minutes later) | |
| Chinese stocks have fallen further amid continued concern over the impact of a credit tightening on its economy. | Chinese stocks have fallen further amid continued concern over the impact of a credit tightening on its economy. |
| The Shanghai Composite SSE index fell 1.2% to 1,936.79 points, entering the bear market territory, often described as a 20% dip from the recent peak. | The Shanghai Composite SSE index fell 1.2% to 1,936.79 points, entering the bear market territory, often described as a 20% dip from the recent peak. |
| The index has dipped 20% since its high of 2,444.80 points in February. | The index has dipped 20% since its high of 2,444.80 points in February. |
| The concern came after the central bank indicated its credit-tightening policy would continue, saying that the era of cheap cash was over. | The concern came after the central bank indicated its credit-tightening policy would continue, saying that the era of cheap cash was over. |
| A government-led credit boom has been one of the key contributors to China's economic growth in recent years. | A government-led credit boom has been one of the key contributors to China's economic growth in recent years. |
| Controlling credit | |
| After the global financial crisis in 2008-09, China unleashed a huge monetary stimulus in an attempt to boost economic growth. | |
| While the credit boom helped cushion the impact of the crisis on its economy, it led to concern that too much cheap cash had flooded its financial system. | |
| There have been calls for China to contain this credit boom and also to reduce its reliance on credit and investment-led growth. | |
| In recent days the People's Bank of China (PBOC), the country's central bank, temporarily turned off the flow of cheap money in an attempt to impose more discipline on its banks and reduce their reliance on credit. | |
| That resulted in China's banks - mostly state-owned - charging each other some of the highest lending rates ever - over 25% in some cases - triggering fears of a credit crunch. | |
| There were fears that the money markets could freeze up completely and put smaller lenders out of business as a result of the central bank's drastic move . | |
| But inter-bank lending rates eased on Monday as PBOC made it clear big commercial banks should do a better job of managing their cash reserves and keep lending to smaller players. | |
| However, the central bank did not signal it was turning the taps back on, leading traders to speculate that borrowing costs would remain relatively high for medium-sized banks and potentially dent profits. | |
| BBC Chief Business Correspondent Linda Yueh said the PBOC's move means that "banks can't count on the central bank for cheap cash". | |
| "In fact, the central bank wants to root out the poorly-performing banks - especially those in the so-called shadow banking system." |