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Chinese shares slumped to a 20-month low today, with airlines, oil companies and other stocks dropping sharply amid anxiety about the wider economic outlook, reports The Guardian. The continuing slide - which saw the benchmark index close 62% below its peak last October - comes on top of concern about a post-Olympic hangover and news last week that factory gate inflation had hit a 12-year high.
The Shanghai Composite Index shed 5.3%, to close at 2,319.87, while the Shenzhen Composite Index slipped 5.9% to 656.08.
Analysts blamed today's fall on hopes of support thwarted in weekend discussions between government regulators and the official Chinese media.
The talks suggested that the authorities "would not take any move to save the poor market," said Zhai Peng, a strategist at Guotai Junan Securities in Shanghai.
The China Securities Regulatory Comission said it was concerned about the plunge and would seek to stabilise the market, but Zhai said its comments were "far below investors' expectations."
Steven Leung, director with UOB Kay Hian, warned: "The larger concern over slowing growth in the economy will continue to weigh."
Airlines, which reported falling demand last month partly due to Olympic-related visa restrictions, were among today's biggest losers. China Southern Airlines, Air China and China Eastern Airlines all plunged by around 10%.
Oil refiners also suffered and coal shares sagged following the announcement of export taxes to address a coal shortage.
In Hong Kong the Hang Seng index fell by 1.1% to 20,930.67 - its lowest close since last August - on the back of concerns about mainland firms.
Exporters have been hit by the global downturn and rising costs. The consumer price index - a headache for the government for much of the year - fell to a 10-month low of 6.3% in July. Yet the producer price index soared, hitting a 10% increase year-on-year.
"So far, the burden has all been on companies because there's so much overcapacity no one has any room to pass on the costs," said Andy Rothman, CLSA's China strategist, blaming the increase on higher global prices for raw materials and energy.
"We are starting to see companies going out of business. After six to 12 months, the survivors will have less competition and be able to raise prices more. But it's a very slow, gradual process."
He suggested CPI, already down from 8.7% to 6.3%, would fall to 5% by the end of the year because its earlier increase had been driven by food price growth which had now halted. He added that he still believed China's slowdown would be a mild one.
"All of the indicators this year have been within expectations; the economy has slowed down to prevent inflation," added Zuo Xiaolei, chief economist of Galaxy Securities, citing the government's "two prevents" of avoiding economic overheating and rising inflation.
But Michael Pettis, finance professor at Peking University, predicted that inflation could reach 8 or 9% by December and warned that domestic consumption could stall.
"The spending numbers have been quite good recently, but it could be because of the Olympics. There seems to be a lot of related spending," he said.
"There's been so much excitement generated. it seems hard to me to say that we won't see some sort of short term hangover at least."
The yuan has also been falling against the dollar over the last month after a period of steady appreciation, although analysts disagree on the causes.
Explanations include the strengthened dollar or a deliberate attempt by the Chinese authorities to boost exports.
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