Tough talk over China economy causes waves in global markets

An investor smokes in front of an electronic board showing stock information at a brokerage house in Shanghai (REUTERS/Aly Song)

Shares in China plunged 5 per cent amid warnings from the government there that it would not "wet nurse" the economy back to health - sending global stock markets headed into further turbulence.

The colourful language followed a US central banker, Richard Fisher, last night warning what he termed the "feral hogs" in the market against trying to force the Fed to keep the QE taps turned on.

China's ruling Communist Party used its mouthpiece, the People's Daily, to make it clear that it would not be providing fresh cash to boost the markets. Recent days have seen the central bank turn off the flow of cheap money in an effort to force the country's banks to be more disciplined in their lending. But the drastic move has triggered big rises in interest rates and concerns about growth in the world's second biggest economy.

The paper declared: "The securities regulatory committee is not the stock market's wet nurse, nor is the central bank."

However, after the initial heavy sell-off in China, the Beijing market recovered to close almost flat on the day, leading most western markets to make some minor recoveries after yesterday's falls.

The FTSE 100, which fell 1.4 per cent yesterday, was up more than 1 per cent; Germany's Dax, down 1.2 per cent yesterday, was up 1.4 per cent; and the CAC-40 in France rallied 1.3 per cent after the previous session's 1.7 per cent decline.

Michael Van Dulken, analyst at Accento Markets, said: "This is still very much a buyer-beware market." He said it was mainly the safer stocks like tobacco and telecoms that were rising, as opposed to sectors like mining which gain when confidence is high.