Chinese share prices plummeted 3.69 percent on Monday with the Shanghai Composite Index, which covers both A and B shares, closed at 5,119.49 points at the end of morning session.

 

The Shenzhen Component Index on the smaller bourse ended at 16,511.37 points, down 3.78 percent.

 

The sharp drop came after the central bank announced on Saturday it would raise the reserve requirement ratio for commercial banks by half a percentage point to a ten-year high of 13.5 percent.

 

It was the ninth time this year that the reserve requirement, or the amount of deposits the central bank ordered commercial banks to set aside, had been increased in an effort to curb bank lending and slow economic growth.

 

Heavy weights led the slump. Sinopec dropped by the daily limit of 10 percent while the new market heavy weight PetroChina by 3.88 percent. China Aluminum tumbled by nearly ten percent, China Shenhua by 7.94 percent.

 

Neighboring markets also maintained downward trend over credit concerns. By midday, the Hong Kong market fell by more than 3 percent.

 

The share prices dropped on Friday after failing to recover from a drastic dive the previous trading day following concerns about possible aggravated inflation.

 

The central bank said last Thursday it might use a variety of measures, including bond issues and reserve requirement ratios, to control the country's "severe" liquidity problem. Analysts said its latest effort to drain excess liquidity have begun to pay off.

 

(Xinhua News Agency November 12, 2007)