(Reuters, Sept 25, 2006) - Chinese financial markets were largely unmoved on Monday by the dismissal of Shanghai's most powerful official, and analysts said they did not expect any major market fallout.

But several Shanghai-focused property stocks tumbled out of concern that the news might herald a tougher crackdown on real estate investment and lending activities in the city.

The Communist Party Secretary of Shanghai, Chen Liangyu, was sacked for corruption, Chinese state media reported. He is the most senior official felled by a corruption probe since Hu Jintao became party chief in 2002.

The benchmark Shanghai stock index <.SSEC>, which was up 0.26 percent at midday before the news emerged, was down 0.1 percent at 1,723.938 points after half an hour of afternoon trade. Turnover was normal.

The government bond and currency markets did not move significantly. The yuan <CNY=CFXS> traded at 7.9193 against the dollar, near a post-revaluation high of 7.9162 hit on Friday.

"I don't see any immediate, direct link between this and the stock market," said an analyst at a major local securities company.

Chen's dismissal may prompt further changes among officials handling economic issues in China's commercial hub. This could cause temporary delays or difficulties for some investors in the city who have formed ties with the current regime.

But in contrast to political changes in China over past decades, which sometimes had ideological implications that could affect economic policy, analysts do not believe the business-friendly tone of Shanghai's administration could change as a result of Chen's demise.

In a sign of continuity with existing policies, the official Xinhua news agency said Chen would be temporarily replaced as city party boss by Shanghai Mayor Han Zheng.

Analysts said Shanghai-related property stocks were most vulnerable because the corruption investigation which felled Chen is focusing on investment activities by the city's social security funds in the property market.

China Enterprise Co. (600675.SS: Quote, Profile, Research), which had traded higher in the morning, plunged 4.04 percent to 7.60 yuan in the early afternoon as turnover ballooned. Jinfeng Investment (600606.SS: Quote, Profile, Research) was down 2.38 percent to 9.83 yuan.

Over the past two months, over 100 investigators sent from Beijing have been questioning dozens of executives at property developers and financial companies over their links to the social security system, which manages over 10 billion yuan ($1.25 billion).

Investigators believe social security funds may have been siphoned off through illicit loans or investment. In one case, authorities believe, an improper 3.2 billion yuan loan was made to a toll road operator.

Traders noted that rumours about the possible dismissal of top city officials had been circulating in the market for many weeks, giving investors time to prepare for the announcement on Chen.
Source:Reuters
tag:China economy