More tightening on horizon as bourses soar

The government may impose more tightening measures as spending and investment in China continue to soar. Capital spending in China's urban areas picked up speed in the first quarter, rising 25.3%, faster than the 23.4% rate of growth of the first two months of the year, the South China Morning Post reported. The announcement came on the same day that China's bourses soared to new heights. The Shanghai Composite Index closed 0.43% higher at a record 3,611.87 points with a historic high in turnover of US$22.5 billion. The index has gained 35% since December. "The market is due for a big correction as it is a bit crazy," DBS strategist Daniel Chan told the newspaper. Both the high stock prices and the rising capital investment are caused by increased liquidity. Economists expect the government to introduce further tightening measures although some said at least another month is needed before the government can determine whether the last interest rate hike and a lift in banks' reserve requirement ratios have taken effect.