Chinese shares closed slightly down on Friday as the government moved to tighten credit in an effort to prevent the economy from overheating, while blue chips gave up more of their recent gains, traders said.
The market had factored in news that Beijing would allow a greater proportion of China's $16-billion national welfare fund into the local markets, as well as likely let the fund tap foreign markets this year, brokers said.
China's central bank plans to raise the level of reserve requirements for some poorly capitalised banks amid growing concerns about over-investment and inflation.
"The government looks set to continue this policy into the second half," said Hu Zhiguang at China Securities. "Cracking down on lending and reigning in investment plans are all going to hurt market sentiment."
B shares in giant Chinese appliance manufacturer Shanghai Electric, one of the most active stocks, fell one percent to $1.0 by midday, due to profit-taking after recent strong rises, traders said, though it bounced off earlier lows.