Bloomberg News

China’s Stocks Fall to 31-Month Low on Economic Slowdown, Europe

October 20, 2011

Oct. 20 (Bloomberg) -- China’s stocks fell, driving the benchmark index to the lowest since March 2009, on concern slowing economic growth and divisions among European leader over a rescue strategy threaten earnings outlooks.

Jiangxi Copper Co., the biggest producer of the metal, slid to a 15-month low as copper futures tumbled 5.5 percent in Shanghai. China Southern Airlines Co. led losses for carriers after China Business News said the aviation regulator reduced its estimates for passenger volume growth. China Citic Bank Corp. and China Vanke Co. paced declines for financial companies after the banking regulator said risks stemming from private lending must be “strictly controlled.”

“Investors are seeing a clearer picture of the economic slowdown at home and globally, which may lead to market fluctuations,” said Liu Jianwei, a fund manager at Bosera Asset Management Co., which oversees more than $29 billion. The central bank is unlikely to loosen its monetary policies as inflation remains high, Liu said.

The Shanghai Composite Index lost 46.1 points, or 1.9 percent, to 2,331.37, a third day of declines and closing at the lowest level since March 25, 2009. The CSI 300 Index slid 2.4 percent to 2,520.53. Global stocks fell as France and Germany split on the role of the European Central Bank in leveraging a rescue fund as banks lobbied against forced recapitalizations and larger writedowns of Greek debt.

The Shanghai index has plunged 17 percent this year, driving down estimated price earnings to a record low of 10.8 times, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that’s near a three-year high.

Bank Lending

Consumer prices in the world’s second-biggest economy increased 6.1 percent in September from a year earlier, the National Bureau of Statistics said last week. The government’s full-year inflation target is 4 percent.

The Shanghai Composite has dropped 4.1 percent this week on reports showing the economy is slowing. China’s economic expansion cooled to 9.1 percent in the third quarter from 9.5 percent in the previous quarter. Foreign direct investment grew in September at the slowest pace in three months, as companies pared spending amid concerns the global recovery is faltering.

A gauge of material companies in the CSI 300 plunged 3.3 percent, the most among the 10 industry groups.

Jiangxi Copper slid 4.4 percent to 25.20 yuan, the lowest close since July 15, 2010. Yunnan Copper Industry Co. dropped 2.4 percent to 17.18 yuan. Copper for January-delivery on the Shanghai Futures Exchange tumbled 5.5 percent to 50,950 yuan a metric ton.

Coal producers also slumped. China Shenhua Energy Co., the listed unit of the biggest producer, sank 2 percent to 24.73 yuan. Yanzhou Coal Mining Co. slid 4.2 percent to 26 yuan.

Airlines Slump

China Southern, the biggest domestic carrier, dropped 4.2 percent to 6.11 yuan. China Eastern Airlines Corp., the second largest, lost 4.7 percent to 4.47 yuan.

The nation’s aviation regulator cut its 2011 passenger number growth estimate to 8 percent from 13 percent, China Business News reported today, citing a report by the Civil Aviation Administration of China.

International travel and cargo shipment demand is weak and domestic growth has slowed, the newspaper said. CAAC forecast this year’s cargo and mail volume may be unchanged from last year, compared with a previous growth estimate of about 12 percent, according to the newspaper.

The Economic Observer reported yesterday an auto industry group cut its forecast for vehicle sales growth to as much as 3 percent this year, from 5 percent.

Private Lending

China Citic Bank declined 2.1 percent to 4.25 yuan. China Construction Bank Corp., the nation’s second-largest lender, lost 1.7 percent to 4.56 yuan. China Vanke, the biggest developer, dropped 1.1 percent to 7.02 yuan. Gemdale Corp. slid 3.1 percent to 4.41 yuan.

China’s central bank will start a second round of investigation into the nation’s private lending and may introduce a monitoring system in the future, the 21st Century Business Herald reported today, citing an unidentified person close to the People’s Bank of China.

Risks stemming from China’s shadow banking system and private lending must be “strictly controlled,” and such loans will be curbed, the head of the nation’s banking regulator said.

Loans to local government financing vehicles and the real- estate industry, which also pose dangers for the banking system, can be managed, said Liu Mingkang, chairman of the China Banking Regulatory Commission, according to a transcript of his speech posted on the regulator’s website yesterday.

Banks’ overall bad debt ratio on real-estate lending is lower than 2 percent and recent stress tests show that they can withstand a 40 percent decline in property prices, Liu said yesterday. Property lending accounted for 19.8 percent of total outstanding loans at the end of August, he said.

--Irene Shen. Editors: Allen Wan, Richard Frost

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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