July 22, 2016 / 4:37 AM / 2 years ago

China stocks slip on stimulus doubts, Hong Kong also weaker

* CSI -0.6 pct, SSEC -0.7, HSI -0.5 pct

* Growing doubts on further monetary stimulus weigh on sentiment

* Financial companies and manufacturers ease

SHANGHAI, July 22 (Reuters) - China stocks fell on Friday after a central bank official cast doubts over the likelihood of further interest rate cuts and as investors took profits following the previous day’s bounce.

The CSI300 index fell 0.6 percent, to 3,232.14 points at the end of the morning session, while the Shanghai Composite Index lost 0.7 percent, to 3,018.82 points. Both indexes are down more than 1 percent for the week so far.

Sheng Songcheng, director of the Survey and Statistics Department at the People’s Bank of China, said on Friday that tax cuts would be a more effective way of stimulating the economy than interest rate cuts, the National Business Daily reported on Friday.

Sheng added that China was caught in a “liquidity trap,” meaning that driving rates down further would have little effect on real investment.

“The most important reason for the deviation between the increase in M1 (money supply) and the growth of the economy is that enterprises lack the willingness to invest,” Sheng was quoted as saying.

Finance shares led indexes lower on the diminished prospects of more policy stimulus, with manufacturing shares also weighing heavily.

Sheng is not the only one to have highlighted the growing divergence between credit growth and real growth in recent days.

“High M1 growth of 24.6 percent year-on-year in June cannot be entirely explained by the sales proceeds of property developers. Financial data of listed companies indicate that other industries are responsible for half of the increase in the cash balance, indicating a structural weakness in the economy,” wrote economists Raymond Yeung and David Qu of ANZ bank in Hong Kong in a research note on Thursday.

“Even though China has not fallen into a ‘liquidity trap’ in a ‘Japanese fashion’, its monetary policy has become less effective at boosting growth.”

China CSI300 stock index futures for August fell 0.9 percent, to 3,192.4, 39.74 points below the current value of the underlying index.

Over in Hong Kong, the Hang Seng index dropped 0.5 percent, to 21,901.20 points, in line with soft regional markets.

The Hong Kong China Enterprises Index lost 0.4 percent, to 9,025.03.

The index measuring price differences between dual-listed companies in Shanghai and Hong Kong stood at 128.08.

A value above 100 indicates Shanghai shares are pricing at a premium to shares in the same company trading in Hong Kong, and vice versa.

The northbound quota for the Hong Kong-Shanghai Stock Connect, currently set at 13 billion yuan, saw net inflows of 0.15 billion yuan.

Reporting by Nathaniel Taplin; Editing by Jacqueline Wong

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