China's economic boom may have kept Hong Kong and other nearby markets afloat in 2009, but it has threatened to sink them this year as investors fret whether mainland authorities will be able to sustain the growth. 'Being too close to China in 2010 is bad for your stock market,' said Tim Condon, chief economist for Asia at ING Financial Markets. 'This administrative policy set-up in China is not one that gives financial markets comfort. In fact, it makes financial markets nervous.' The Shanghai Composite Index has been the worst performing major benchmark in Asia-Pacific so far this year, down 20.7 per cent as of Friday. Hong Kong's Hang Seng Index has barely kept above water, edging up 0.4 per cent over that span. Meanwhile, Taiwan was down 0.4 per cent. China managed to shrug off the global downturn and keep its surging economy on track with a historic influx of investment. That has led to rampant speculation in the property and stock markets, however, forcing authorities to walk a tightrope between maintaining growth and reining in imbalances. Already this year, the government has ramped up the amount of capital that lenders must set aside and has increased downpayment requirements for mortgages. 'When [authorities] clamp down, it creates this anxiety in financial markets that they are going to clamp down too hard,' Condon said. 'That is the source of these China boom-bust concerns.' Condon said the best-case scenario for China would be if the government pursues a normalising policy that reduces loan growth targets, raises benchmark deposit and lending rates, and encourages steady currency appreciation. The mainland financial system is still steaming ahead, however. New bank loans have amounted to 5.7 trillion yuan (HK$6.57 trillion) through the first eight months of this year, set to exceed the government's 7.5 trillion yuan target for 2010. Meanwhile, the economy has expanded by double-digit percentages in each of the first two quarters. 'China has lent more and beyond for its stimulus,' said Martin Marnick, a director at Anand Rathi in Hong Kong. 'And China coming off the boil is what people are now worried about.' Shares in mainland banks fell last week following reports that authorities were thinking of ramping up reserve requirements. On Thursday, China Merchants Bank dropped 2.5 per cent to HK$19.90. Bank of Communications fell 0.8 per cent and Industrial and Commercial Bank of China edged down 0.2 per cent. The sector rebounded on Friday, however, after market fears were soothed by mainland media reports saying the China Banking Regulatory Commission had dismissed the speculation about increasing reserve requirements. 'If China starts to stall then Hong Kong has to stall as well,' Marnick said. 'A safe haven area for investment is more in the sub-continent than anywhere else now.' Southeast Asian markets have surged this year while China and its surrounding markets have stagnated. India has climbed 12.2 per cent.