Inflation and property prices ease in China

Inflation in China eased for the third consecutive month in October on government policy tightening that has also started to drive residential property prices down with greater momentum.

China’s annual inflation rate fell to 5.5%, the country's National Bureau of Statistics said Wednesday, down from 6.1% in September.

The decline potentially gives the central government room to ease new credit after months of strict controls aimed at cooling down the country’s overheated economy.

Looser bank lending may soon be necessary to blunt the effects of another global recession and carefully guide economic growth down from unsustainable annual rates of 9% to 10%.

“Weakness in the export sector will be the main hindrance to economic growth in the coming quarters,” Jing Ulrich, an economist for J.P. Morgan, said in a research note. “However, with falling inflation clearing the way for policy easing, we believe that China will manage a ‘soft landing,’ achieving respectable GDP growth of 8.3% in 2012.”

That will require delicate policy tinkering as signs are growing that China’s frothy property market has begun its long-awaited correction.

A national index of property prices in 100 cities has declined two consecutive months as cash-strapped developers are experiencing steep declines in sales.

Tight credit and rules targeting speculators could drive prices down 10% to 30%, according to Barclays Capital.

That’s a relief to potential homebuyers priced out of the market and to a government worried a property bubble was stoking social instability.

So far, only angry homeowners have openly protested changes in prices. Last month, hundreds gathered outside the offices of a Shanghai developer that cut prices, demanding refunds and contract cancellations.

The government risks sinking prices at its own peril. Real estate accounts for a fifth of China’s economy, according to some estimates, and contributes up to half of local government revenue in the form of public land sales.

Still, Premier Wen Jiabao remains committed to driving residential prices down.

“We aim to lead housing prices back to a reasonable level and promote a healthy development of the real estate industry at the same time,” Wen told reporters Sunday.

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Photo: Two women look at buildings under construction in Chongqing, China. Credit: Getty Images

Wal-Mart executives resign in China labeling scandal

Wal-Mart said Monday it was replacing the head of its operations in China, the giant U.S. retailer's latest setback in the country after employees were arrested and detained last week in the western city of Chongqing in connection with a labeling scandal.

The company said in a statement posted on its website that Ed Chan, its chief executive in China since 2007, was leaving the company for personal reasons. Clara Wong, a senior executive for human resources, was also stepping down, the statement said.

Though Wal-Mart did not link the personnel moves to the controversy in Chongqing, the company continues to deal with fallout from charges that it sold about 140,000 pounds of pork over the last two years that was mislabeled as a more expensive organic variety. The added cost to consumers amounted to about $115,000, according to the city government's website.

Wal-Mart executives resign in latest set-back for U.S. retailer in China

Wal-Mart said Monday it was replacing the head of its operations in China, the latest set-back in the country for the giant U.S. retailer after employees were arrested and detained last week in the western city of Chongqing over a labeling scandal.

The company said in a statement posted on its website that Ed Chan, its CEO in China since 2007, was leaving the company for personal reasons. Clara Wong, a senior executive for human resources was also stepping down, the statement said.

Though Wal-Mart did not link the personnel moves to the controversy in Chongqing, the company continues to deal with fallout over charges it sold about 140,000 pounds of pork the past two years that was mislabeled a more expensive organic variety. The added cost to consumers amounted to about $115,000, according to the city government’s website.

Chinese inflation remains high amid signs of economic slowdown

Inflation in China moderated in September for the second consecutive month, but still remained stubbornly high amid growing signs of a global slowdown.

China’s consumer price index, the main gauge of inflation, grew 6.1% from a year earlier, down slightly from a 6.2% rise in August.

The index remains far above the 4% annual target set by the central government, making it difficult to loosen monetary policy if China’s economy is pulled into a global decline.

There’s evidence that the world’s second-largest economy may be slowing down.

Trade data released Thursday showed Chinese exports decreased in September over slackening European demand and a strengthening yuan, the country’s currency.

Prices for crude oil and copper fell on news of the data, reflecting jitteriness in China’s ability to import commodities as voraciously as it has in the past.

Meanwhile, thousands of small businesses in China’s coastal provinces are reportedly being squeezed by the country’s credit crunch. China’s State Council said it would support the small firms by increasing loans and offering tax breaks.

But central leaders say reining in inflation remains an overall priority –- dulling expectations that policymakers will loosen credit, drop interest rates or lift buying restrictions in China’s stagnant residential property market.

“For the moment, we remain in policy stasis -– no more tightening, but no real loosening -– while Chinese authorities nervously eye developments in the Eurozone,” said Alistair Thornton, an analyst for IHS Global Insight in Beijing. “It is the Eurozone and U.S. that form the greatest downside risk for China’s outlook.”

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Photo: Customers look at prices for vegetables at a supermarket in Hefei, China. Credit: Reuters

China lashes out against U.S. bill aimed at currency manipulators

China on Tuesday blasted a proposed U.S. bill that would punish countries for undervaluing their currency by saying it would undermine the global economy and potentially lead to a trade war.

China’s central bank and ministries of commerce and foreign affairs released separate statements criticizing the bill, which is being championed by Democratic lawmakers who hope to protect U.S. jobs by slapping tariffs on Chinese imports.

Such a move “seriously violates rules of the World Trade Organization and obstructs China-U.S. trade ties,” said Foreign Ministry spokesman Ma Zhaoxu in a statement posted on the Chinese government’s official website.

China’s central bank said the attention given to China’s currency, known as the yuan or renmenbi, deflects Washington from the real issues plaguing the American economy.

“The yuan bill passed by the U.S. senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime and may also lead to a trade war which we would not like to see,” the bank said on its website, according to a translation by Reuters.

The yuan’s value is set daily by China’s central bank, not by free markets. Critics of China’s currency policy contend the yuan is undervalued by as much as 40% to give the world’s second largest economy an unfair trade advantage.

Labor advocacy groups in the U.S. such as the Economic Policy Institute say this has fueled a trade deficit with China that has cost Americans 2.8 million jobs between 2001 and 2010.

Debate still rages over whether targeting China’s currency will return jobs to the U.S. as manufacturing could shift to another low wage country such as Vietnam.

The yuan has edged-up about 10% against the dollar since it was de-pegged from the greenback in June, 2010. Experts say the central bank is in favor of faster appreciation to combat inflation, which is running at a three-year high. A stronger yuan would make imports cheaper.

But the Ministry of Commerce, which oversees trade, and officials in coastal manufacturing provinces are against more aggressive appreciation for fear it will bankrupt factories, sap taxes and leave millions out of work.

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Photo: China blasted a proposed U.S. bill that would slap tariffs on countries that undervalued their currency. Above, a bank clerk counts notes. Credit: Zhong Min / EPA

China rejects U.S. complaint against chicken tariffs

The steamed chicken feet just haven’t been as unctuous since China slapped tariffs on U.S. poultry imports last year.

The price of American chicken, including the prized feet euphemistically called “phoenix talons” in China, shot-up between 50% and 100%, which will cost the U.S. poultry industry an estimated $1 billion in sales by the end of this year.

With that in mind, the U.S. Trade Representative announced Tuesday it had filed a complaint with the World Trade Organization saying China violated international trade rules when it imposed anti-dumping and countervailing duties on U.S. chicken.

“China seems to have failed to observe numerous transparency and due process requirements, failed to properly explain the basis for its findings and conclusions, incorrectly calculated dumping margins, incorrectly calculated subsidy rates and made unsupported findings of injury to China’s domestic industry,” the trade office said.

In a response Wednesday, China’s Ministry of Commerce released a brief statement rejecting the U.S. claim.

“China’s anti-dumping measures follow the law and are in accordance with WTO rules,” the statement said. “China will study requests from the U.S. carefully and handle them under the WTO’s dispute settlement system.”

Imports of U.S. chicken to China have plunged 90% since the imposition of the tariffs, which are largely seen as retaliation for U.S. duties of 35% on Chinese tires.

The two countries are also sparring over steel, electronic payment services, wind energy equipment and industrial raw materials such as zinc and bauxite.

Before the battle over chicken erupted, U.S. poultry farmers enjoyed steady, high-margin business selling unwanted parts to China.

In 2008, about half the $677 million worth of chicken sold to China were chicken feet, sold for up to 80 cents per pound compared to just pennies in the U.S., according to Time magazine.

While poultry is growing in popularity in China (KFC is the king of fast food in China and expanding rapidly), pork is still the overwhelming meat of choice.

By one estimate, Chinese consume three times as much pork as chicken at nearly 100 pounds per capita each year.

With inflation driving prices-up for pork in China, U.S. hog farmers have found themselves in the opposite situation of their poultry-raising countrymen. Imports of U.S. pork have risen five-fold the first seven months of this year compared to the same period last year, according to the state-owned China Daily.

China and the U.S. now have 60 days to resolve the current dispute on their own. If negotiations fail, the WTO can launch proceedings.

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 Photo: A woman picks out chicken wings and legs at a market in Shanghai, China, on Wednesday, Sept. 21, 2011. Credit: Qilai Shen / Bloomberg.

U.S. ambassador warns China: Foreign businesses feel unwelcome

U.S. Ambassador to China Gary Locke has been something of an enigma to the Chinese in the month he's been in Beijing.

His no-frills style of traveling coach on planes and buying his own coffee at an airport Starbucks has divided observers used to seeing pampered Chinese officials. Is it a publicity stunt or something local leaders should emulate, many wondered.

Still, one of the remaining questions about the third-generation Chinese American was whether he would be more sympathetic toward Chinese interests. Although such a query may seem fringe in the U.S., it's not out of the ordinary in China to equate race with loyalty. As one popular saying goes, "You can't betray your ancestors."

But speaking to American executives Tuesday in the Chinese capital, the former Washington governor showed no hint of softening U.S. demands. He called on Beijing to appreciate its currency, eliminate trade and investment barriers and strictly enforce intellectual property rights.

Locke also echoed growing concerns from foreigners that China was becoming an increasingly unwelcome place to do business.

"China's current business climate is causing growing frustrations among foreign business and government leaders, including my colleagues in Washington," Locke said in the speech, which outlined his vision of the U.S.-China economic and trade relationship.

Locke warned if China's economy didn't allow wider foreign access, "it will mean less innovations from Chinese businesses, fewer opportunities for the Chinese people [and] slower growth for the Chinese economy."

The ambassador cited regulations in industries such as mining, banking, energy and transportation as being unduly restrictive and, as a result, "creating seeds of doubt in the minds of foreign investors as to whether they are truly welcome in China."

He offered credit cards as an area in which foreign banks could play a larger role to help boost sorely needed domestic consumption in China. Chinese banks are mostly geared toward serving state-owned companies and aren't permitted to compete in interest rates. A recent survey by the accounting firm KPMG showed profits of foreign banks lagging behind their Chinese counterparts.

Discussing intellectual property, Locke cited rampant software piracy as a significant problem.

"In the United States, for every $1 in computer hardware sales, there is about 88 cents in software sales," he said.  “But in China, for every dollar in hardware sales there is only eight cents in software sales."   

The reason, Locke said, was that 80% of software in China was believed to be counterfeit.

A debate last week between Locke and one of China's most famous economists, Li Daokui, underscored just how far apart the two countries are on the issue of intellectual-property protection.

Li, an advisor to the central bank, said he disagreed a growing economy required such legal protections. Instead, the laissez-faire environment was good for young entrepreneurs hoping to get established, Li said, according to the Wall Street Journal.

In his speech Tuesday, Locke again rejected Li's idea, saying China neglected intellectual property protection at its own peril.

"I have heard from so many Chinese-owned companies who have devoted significant resources to develop new products and technologies. And they complain they were almost wiped out by others illegally copying their ideas and technology," Locke said. "For every foreign company calling for stronger IP protection, there are many more Chinese companies demanding the same."

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Photo: U.S. Ambassador to China Gary Locke speaks to U.S. business executives in Beijing on Tuesday. Credit: Lintao Zhang / Getty Images

U.S. Ambassador to China says foreign businesses frustrated, feeling unwelcome

U.S. Ambassador to China Gary Locke has been something of an enigma to the Chinese in the one month he’s been in Beijing.

His no frills style of traveling coach on planes and buying his own coffee at an airport Starbucks has divided observers used to seeing pampered Chinese officials. Was it a publicity stunt or something local leaders should emulate, many wondered.

Still, one of the remaining questions about the third-generation Chinese American here was whether he would be more sympathetic toward Chinese interests or not. While such a query may seem fringe in the U.S., it’s not out of the ordinary in China to equate race with loyalty. As one popular saying goes, “You can’t betray your ancestors.”

But speaking to American executives Tuesday in the Chinese capital, the former Washington governor showed no hint of softening U.S. demands. He called on Beijing to appreciate its currency, eliminate trade and investment barriers and strictly enforce intellectual property rights.

Locke also echoed growing concerns from foreigners that China was becoming an increasingly unwelcome place to do business.

“China’s current business climate is causing growing frustrations among foreign business and government leaders, including my colleagues in Washington,” Locke said in the speech, which outlined his vision of the U.S.-China economic and trade relationship.

Locke warned if China’s economy didn’t allow wider foreign access, “it will mean less innovations from Chinese businesses, fewer opportunities for the Chinese people [and] slower growth for the Chinese economy.”

The ambassador cited regulations in industries such as mining, banking, energy and transportation as being unduly restrictive and, as a result, “creating seeds of doubt in the minds of foreign investors as to whether they are truly welcome in China.”

He offered credit cards as an area foreign banks could play a larger role to help boost sorely-needed domestic consumption in China. Chinese banks are mostly geared toward serving state-owned companies and aren’t permitted to compete in interest rates. A recent survey by the accounting firm KPMG showed profits of foreign banks lagging behind their Chinese counterparts.

On intellectual property, Locke cited rampant software piracy as a significant problem.

“In the United States, for every $1 in computer hardware sales there is about 88 cents in software sales,” he said.  “But in China, for every dollar in hardware sales there is only eight cents in software sales.”   

The reason, Locke said, was that 80% of software in China was believed to be counterfeit.

A debate last week between Locke and one of China’s most famous economists, Li Daokui, underscored just how far apart the two countries are on the issue of intellectual property protection.

Li, an advisor to the central bank, said he disagreed a growing economy required such legal protections. Instead, the laissez-faire environment was good for young entrepreneurs hoping to get established, Li said, according to the Wall Street Journal.

In his speech Tuesday, Locke again refuted Li’s idea, saying China neglected intellectual property protection at their own peril.

“I have heard from so many Chinese-owned companies who have devoted significant resources to develop new products and technologies. And they complain they were almost wiped out by others illegally copying their ideas and technology,” Locke said. “For every foreign company calling for stronger IP protection, there are many more Chinese companies demanding the same.”

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Photo: U.S. Ambassador to China Gary Locke spoke to U.S. business executives in Beijing Tuesday, outlining his vision of the U.S.-China economic relationship. Credit: Lintao Zhang / Getty Images.

Wealth rises in China with increasing social cost

Economic conditions around the world may be deteriorating but you couldn’t tell by the headlines in China.

The latest list of the country’s mega-rich was released last week showing tycoons belonging to the property, consumer goods and the Internet industries bursting with cash in another banner year of wealth creation.

Another report says Chinese millionaires will make up half the population of high net worth people in Asia in the coming years.

HSBC is predicting China will overtake Japan this year as the world’s largest consumer of luxury goods; a Chinese investor is trying to buy a chunk of Iceland for $8.8 million; and news reports Tuesday said cash-strapped Rome is cozying-up to Beijing hoping they’ll open their checkbooks to invest in Italian bonds and companies.

Whether its fine wine, yachts, private planes or man bags, growing wealth and conspicuous consumption has been one of the most enduring Chinese storylines in recent years.

But at what price?

There’s a growing unease about the gap between rich and poor in China – a rift that appears to be widening and threatening the government’s motto of stability at all costs.

“Becoming rich through honest work and legal means is glorious. But at the same time, the public is worrying that the widening wealth gap between rich and poor is hurting social harmony,” read an official New China News Agency editorial Friday.

To put the disparity in perspective, the vast majority of China’s 1.3 billion people aren’t even subject to income taxes because they earn too little. Only 24 million people make the minimum $545 monthly income necessary to be taxed, according to the Ministry of Finance.

China's per capita annual income of $7,600 ranks below Angola and Albania. 
 
As food and property prices move higher, populist resentment grows. Take away outrage over privileged elite, corruption and mistresses and there would be a lot less to write about on China’s wildly-popular micro-blog services.

(The scandal du jour is over the beating of a Beijing couple at the hands of 15-year-old driving a BMW without a license. The boy, Li Tianyi, turned out to be the son of a famous People’s Liberation Army singer).

After decades of imploring its people to get rich, China’s communist rulers are now asking citizens to dial the ostentation down a notch. Earlier this year, Beijing banned billboards that promoted “hedonism, lavishness and the worship of foreign things,” Bloomberg reported.

“The government is facing a conflict,” Michael Ouyang, representative of the World Luxury Association in China, told the Washington Post. “They don’t want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don’t want to limit luxury products because it’s good for the economy. So they’re facing a dilemma.”

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Photo: Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing. Credit: Diego Azubel / EPA.

China inflation eases in August

China’s inflation eased in August from a three-year high, giving central leaders much-needed breathing room in the face of a worsening global economy.

The National Bureau of Statistics said Friday the country’s consumer price index rose 6.2% from a year ago -– down from 6.5% in July, which was a 37-month high.

Though inflation remains well above a 4% annual target, analysts say the problem may have peaked, diminishing the need for the government to employ tightening measures.

China’s leaders will need fiscal flexibility if a major financial downturn ripples across the globe.

“Although we have entered a period of structurally higher inflation, the moderation in the CPI reading is encouraging and could give the government more policy leeway at a time when market concerns have shifted towards the potential for slower growth in the global economy,” said Jing Ulrich, J.P. Morgan’s chairman of global markets for China.

Falling food prices were largely responsible for tempering inflation last month, rising 13.4% from a year ago compared to 14.8% in July.

But non-food inflation rose 3% from a year earlier, slightly up from July’s reading of 2.9%.

“China’s inflation is down but not out,” said Alistair Thornton, an economist for IHS Global Insight. “The moderation in inflation is not broad-based.”

-- David Pierson 

Twitter.com/dhpierson

Photo: Customers look at prices for vegetables at a supermarket in Hefei, China. Credit: Reuters

Asian shares tumble on grim U.S. jobs report

Asian shares suffered heavy losses Monday on the first day of trading after last week's bleak U.S. jobs report intensified fears of a global recession.

Japan's Nikkei 225 index was down 1.8%, Hong Kong's Hang Seng index lost about 3% and South Korea's Kospi nosedived 4.4%.

China's benchmark stock index slumped 2% to close at a 13-month low on fears the government would continue to tighten monetary policy.

Chinese Premier Wen Jiabao said last week that stabilizing consumer prices is the government's chief priority.

At a press conference in Beijing Monday, World Bank President Robert Zoellick said inflation remains China's biggest short-term risk.

The former U.S. Deputy Secretary of State was meeting Chinese leaders in preparation of a joint report to be released later this year outlining steps China needs to take to rebalance its economy away from exports and investment toward domestic consumption.

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Photo: A South Korean currency trader covers his face with his hands in front of screens Monday. Credit: Ahn Young-joon / AP.

Asian shares join global slide in early trading

Asian stocks fell in early trading Friday after steep losses in European and U.S. markets over intensifying debt concerns and poor economic data.

Japan's Nikkei 225 index fell 2.1% shortly after opening, South Korea's Kospi was off 4% and Australia's SP/ASX 200 dropped 2.6%.

Analysts said Asian investors were concerned about U.S. data that showed declining home resales and business activity.

"Investors have been spooked by these data. They are now focusing on next week's data such as U.S. GDP," Yumi Nishimura, a senior market analyst at Daiwa Securities, told Reuters. "Retail investors may buy defensive stocks on dips, but such buying may not have an impact on the overall index."  

-- David Pierson

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

Chinese currency quickening pace of appreciation

The change may seem minuscule. But for those who follow China's currency, 0.8% is practically a bonanza.

That's how much the Chinese yuan has appreciated against the dollar in the last week, its fastest pace in almost a year.

Monday showed no signs of slowing down as China's central bank set its so-called parity exchange rate at 6.395 yuan for each dollar, giving the Chinese currency a value of 15.64 U.S. cents, a record high. (The bank sets the rate in the morning before every currency trading session and allows the yuan to strengthen or weaken 0.5%.)

The yuan has gained 3.1% against the greenback this year and 6.8% since June 2010, when China depegged its currency from the dollar. Many analysts had expected the yuan to climb just over 6% for the year, but the last few days may give them reason to revise on the upside.

The uptick in appreciation is welcome news to trading partners who have long argued that China unfairly undervalues its currency to boost its exports. Reinforcing that view, China last week reported its largest trade surplus in more than two years.

Diplomacy may be at play as well. The yuan's strengthening comes right before Vice President Joe Biden's arrival in China this week. The last time the so-called redback grew this fast was last September, when Washington was preparing a report on China's currency regime.

But more than anything, analysts say, the strengthening yuan has to do with China's growing battle with inflation, which hit a 37-month high in July, stoking fears of social instability the cost of food.

A mightier yuan would make imports cheaper and rein in the nation's over-abundant money supply.

The recent downgrade of U.S. government debt by Standard & Poor's has also raised doubts in Beijing about the merits of running large trade surpluses, which increase China's foreign-currency reserves. With few other viable ways to invest that money, China has accumulated about $1.2 trillion in U.S. Treasuries.

In a recent research note, Daniel Hui, a senior foreign exchange strategist at HSBC, said of the yuan's quickening appreciation:

[I]t is increasingly likely that this is going beyond just macro factors, and that domestic politics is becoming increasingly important.

We have long viewed [foreign exchange] policy as ultimately being the outcome of a domestic political process. Now, the U.S. sovereign downgrade by S&P as well as the seemingly increased potential for a third round of quantitative easing is stoking real debate [in China] as to the broader costs and benefits of China's choice of exchange rate policy. This, alongside recent domestic discontent, may have been enough to shift [foreign exchange] policy away from the previous stance, becoming more permissive and lessening the requirement for such large accumulation of dollars. If so, this new, accelerated pace of appreciation could last for some time.

The trend could also mean that China's central bank, which favors liberalizing the country's financial sector, is gaining ground against pro-export forces -- namely rich coastal provinces and their patron in the central government, the Ministry of Commerce.

The ministry has said that a sharp appreciation of the yuan would leave millions of factory workers out of jobs. 

But Li Jie, head of the Reserves Research Institute at the Central University of Finance and Economics in Beijing, disagrees, telling The Times last week that a stronger yuan would help the country's manufacturers by reducing raw-material prices and wages.

"It would easily offset the pain of having more expensive exports," Li said.

-- David Pierson

Photo: A grocery store cashier holds 100-yuan notes in Beijing. Credit: Frederic J. Brown / AFP / Getty Images

 

 

 

 

 

Asian markets close day of mixed trading

Trading was mixed in Asian markets Thursday as investors remained jittery over the European debt crisis and faltering global economy.

Japan's Nikkei 225 stock average fell 0.6% to 8,981.84 on a day of wild swings for the yen. Hong Kong's Hang Seng index declined 1% to 19,595.14, Taiwan's Taiex lost 0.2% to 7,719.09 and Australia's S&P/ASX 200 index ended down 0.5% to 4,140.8.

Advancing were China's Shanghai Composite Index, which gained 1.3% to 2,581.51, and South Korea's Kospi, which rose 0.6% to 1,817.44, the second day of gains after the country's Financial Services Commission banned short selling.

The regulating agency's chairman said on a radio program Thursday that South Korea would fare better than it did in the 2008 financial crisis if another global recession were to arise, Reuters reported.

--David Pierson

Photo: Pedestrians are reflected on a display board showing the current Nikkei share average in Tokyo. Credit: Kim Kyung-Hoon / Reuters

 

Asian stocks dive in early trading

Asian stocks joined the global sell-off in early trading Thursday, mirroring the renewed panic on Wall Street a day earlier.

Within about 20 minutes of opening, Japan's Nikkei 225 stock average sank 1.6%, South Korea's Kospi index fell 2% and New Zealand's NZX-50 was down 0.7%.

Asian shares saw major gains Tuesday but appear just as concerned about Europe's debt crisis that rattled U.S. markets hours earlier.  

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

Asian markets recover after early losses

Asian stocks rebounded after a volatile day of trading Tuesday that sent markets nosediving in the morning before clawing back to more stable territory.

Japan's Nikkei 225 stock average closed down 1.7% to 8,944.48 after losing more then 4% earlier in the day and briefly reaching its lowest level since March 15, the aftermath of the nation's devastating earthquake and tsunami.

Mitsubishi UFJ Financial Group fell 3.2% and Canon, the world's largest camera maker, slid 1.9%. Inpex Corp., Japan's biggest oil exploration company lost 5.5% in response to falling oil prices, which dropped to $78 a barrel amid a dumping of commodities.

Trading swung even more wildly on Australia's S&P/ASX200 which hit a two-year low in the morning before turning around at noon to end the day at a gain of 1.2% to 4,034.80.

Analysts told the Australian Associated Press that investors returned to buying after China's consumer price index data showed non-food inflation declining, delaying the prospects of another interest rate hike in Beijing. Australia is a major supplier of commodities to China.

South Korea's Kospi fell by as much as 10% only to recover for a loss of 3.6% to 1,801.35 at its closing. The index, which was battered by fleeing foreign investors, was being bolstered later in the day by public institutions and pension funds, the Wall Street Journal reported.

Hong Kong's Hang Seng was trading down 1.9% by late afternoon, a significant improvement from the morning when investors were spooked by China's inflation report showing year-on-year consumer price growth at a 37-month high.

--David Pierson

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Photo: A woman is reflected on an electronic stock indicator in Tokyo. Credit: Shizuo Kambayashi / Associated Press.

Asian stocks hit hard in early trading

Stocks in Tokyo were battered in early trading Tuesday, joining the rout in New York and other global markets.

An hour after opening, the Nikkei 225 stock average was down nearly 4%, in what appears to continued panicked selling after Standard & Poor's downgraded the United States' credit rating Friday.

The dive brought the index close to its lowest level of the year, which was set March 15 after the country's devastating earthquake and tsunami.

Other Asian markets also fared poorly in morning activity. South Korea's Kospi continued its free fall by plunging as much as 5%, triggering a brief halt to trading for the second day in a row.

South Korean Finance Minister Bahk Jae-wan called for a global response at a policy meeting Tuesday morning, the Wall Street Journal reported.

"No individual country can adequately respond to this financial market shock on its own," Bahk said. "Given our nature as a small and open economy, we need to strengthen policy collaboration with other countries."

Australia's S&P/ASX200 was down 5.4% in early trading.

-- David Pierson

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

Asian stocks plunge on first day of trading after U.S. downgrade

Asian shares plummeted Monday on the first day of trading after an unprecedented downgrading of U.S. government credit last week, raising fears the global economy was heading for deeper trouble.

In what could be a preview of U.S. markets, Hong Kong's Hang Seng fell 2.3% to 20,464.03, Japan's Nikkei 225 stock average dropped 2.2% to 9,097.56 and the Shanghai Composite Index lost 3.8% to end at 2526.82.

  “From how fast the market is falling I can see people are really scared,” said Chen Wenzhao, an analyst for China Merchant Securities in Shanghai. “In the short term, it may be really hard for people to overcome their worries.”

The steep losses came even after global policy makers said efforts would be made to restore confidence in financial markets.

Trading on South Korea’s Kospi was briefly halted after it nosedived by as much as 7.4% in the afternoon. The index ended the day down 3.8% to 1,869.45.

“We’re seeing real panic selling now,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion, told Bloomberg. “Concerns about global economic conditions are affecting Asian markets overall. Korea, which has relatively more liquidity, is feeling a harder pinch.”

Indonesian President Susilo Bambang Yudhoyono said he would hold an emergency meeting with his cabinet after stocks in his country fell about 5%, Reuters reported.

In other Asian markets, Taiwan’s Taiex slumped 3.8% to 7,552.80, Australia's S&P/ASX 200 index dropped 2.9% to 3,986.10 and Singapore's Straits Times Index fell 2.9% by later afternoon.

--David Pierson

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Photo: An investor in front of a stock price board at a brokerage in Shanghai earlier this year. Credit: Eugene Hoshiko / Associated Press