Good and bad news out of China this past week

There was "big" news and "bad" news from China last week.

First the "biggish" news: the Agricultural Bank of China is now almost certain to raise $23 billion from Hong Kong and Shanghai in the world's biggest IPO.

Its counterpart, the Bank of China, is planning to raise $8.9 billion from the markets.

Beijing and Taiwan signed another landmark deal last week, slashing various duties and tariffs and easing cross-Strait trade.

The yuan rose to its highest against the dollar in five years.

China launched a pilot scheme to allow institutions to channel yuan held offshore back into the country.

And in another first, the government launched a major pilot project across 12 cities to help converge telecommunications, internet and broadcast networks.

The convergence project is estimated to attract at least $44 billion of investment from broadcasters and telecom carriers.

Timid investors

Now the bad news: Mainland China, Hong Kong and Taiwan markets kept sliding most of last week.

The Shanghai Composite Index lost 6.63 per cent while the Shenzhen Component lost 6.68 per cent.

The reversals in China dragged down the regional markets, including Japan's Nikkei, South Korea's Kospi and also the S and P.

Chinese investor appetite throughout the first half of the year has been timid and apathetic.

Shanghai plunged 26.8 per cent , while the Shenzhen index slumped 31.48 per cent.

According to the ICBC Investment and Wealth Management Index, Chinese urban investors turned cautious in the second quarter amid equity fluctuations and government heavy-handedness in cooling the property market and overcapacity.

According to the index, Chinese urban residents' investment intentions went from "relatively strong" to "neutral" in the second quarter.

The "Macro Environment Confidence" scale lost ground for the second straight quarter, indicating urbanites' increased concern about the overall economy.

Uncertainties

The "Investment Wish" sub-index also slipped, implying that urban residents were putting less time and money into investing.

This was hardly surprising as only 8.2 per cent of Chinese investors profited from equity markets in the first half the year, according to the Sina.com website's online poll conducted last week.

The Shanghai stock market has fallen 25 per cent since mid-April because of worries about the economy and concern that a deluge of bank fund-raisings will swamp the market.

The Shanghai Index dropped six per cent and Hong Kong fell three per cent soon after the Agricultural Bank set its IPO price range last week.

Market volatility did not ease even after news that shares worth $5.45bn, or nearly half of the Hong Kong offering, had already been allocated to 11 main investors, including sovereign wealth funds from Qatar and Kuwait.

Analysts insisted that the weakness in the equity markets was due to fears of massive bad loans emerging in the next few months.

China's banks had been raising billions of dollars from investors under orders from regulators to beef up their balance sheets after they lent a record 9.6 trillion yuan in 2009 in support of the massive stimulus plan.

Bank of China's latest bid to raise nearly $9 billion, is part of the state-owned banks' efforts to replenish capital following last year's lending boom.

All this has done little to fortify investor trust.

Strangely, cross-Strait pact between Beijing and Taiwan also failed to lift spirits. China said it would cut duties on more than 500 items from Taiwan with an export value of $13.8 billion, while the island would lower tariffs on 267 items from China.

Yet, the markets took a short term view of this as the Taiwan Index fell with investors keen to lock in profits. Analysts have done little to lift sentiments. They have raised fears about the Chinese economy.

The writer is a freelance journalist based in China.