Bloomberg News

China’s Stocks Decline on Property Tax Concern

August 22, 2012

Chinese stocks fell, dragging down the benchmark index by the most in a week, on speculation the government will expand a property tax and after a Japanese report showed shipments to China declined last month.

China Vanke Co. led real-estate companies to the biggest decline among the Shanghai Composite (SHCOMP) Index’s industry groups after the Legal Evening News reported Hubei province is proposing property-tax rules. China Shipping Development Co., part of the nation’s second largest sea-cargo group, fell 2.2 percent after posting its first half-year loss since at least 1998. Anhui Quanchai Engine Co. slumped 3.4 percent after a unit of China Rongsheng Heavy Industries Group Holdings Ltd. cancelled a bid for Anhui Quanchai’s parent.

“Property taxes and industry curbs are affecting the market,” said Zhang Yanbin, an analyst with Zheshang Securities Co. in Shanghai. “I would expect more bad earnings to come out in the next few days, pushing the market lower.”

The Shanghai Composite retreated 0.5 percent to 2,107.71 at the close, while the CSI 300 Index (SHSZ300) decreased 0.8 percent to 2,295.59. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slid 1.4 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 1.3 percent in New York.

The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is worsening. A Japanese government report today showed a wider- than-estimated trade deficit in July after shipments to China slid 12 percent. China’s imports rose 4.7 percent in July, compared with the estimate for a 7 percent gain and a 6.3 percent increase in June, the customs bureau said Aug. 10.

Property Stocks

“It’s unavoidable that Japan’s economic growth will lose steam this quarter,” said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo. “Global demand is looking stagnant as China’s economy is slowing while the advanced nations’ economies remain weak.”

A gauge of property stocks in the Shanghai Composite slid 1.7 percent, the most among five industry groups. China Vanke, the biggest developer, dropped 2.2 percent to 8.14 yuan. Poly Real Estate Group Co., the second-largest, lost 3.5 percent to 9.49 yuan. Gemdale Corp. declined 2.7 percent to 5.03 yuan.

The central province of Hubei is proposing detailed property tax rules, the Legal Evening News reported yesterday, citing Xu Zhengyun, a spokesman for the provincial taxation bureau. The tax will be based on market value instead of the purchase price of the properties, the newspaper said, citing an unidentified person.

Hubei Denial

Hubei denied “rumors on the Internet” that it is proposing detailed property tax rules, according to a statement posted on the province’s local taxation bureau website today.

The nation’s two-year effort to curb a real-estate bubble included imposing a property tax for the first time in Shanghai and Chongqing, raising down-payment and mortgage requirements, increasing building of low-cost social housing and placing home purchase restrictions in about 40 cities.

China’s prices of new homes rose in the largest number of cities in 14 months in July. Prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said last weekend. That was the most since May last year and compared with 25 cities in June.

Rising property prices are constraining aggressive policy action from the central bank, Zhang Zhiwei, China economist at Nomura Holdings Inc., said Aug. 20. Policy makers cut interest rates in June and July after two reductions in reserve- requirement ratios for lenders this year as the economy expanded at the slowest pace since 2009.

China’s benchmark index rebounded by the most in a week yesterday on speculation more cities will roll out stimulus plans to avert a deeper slowdown.

Stimulus Outlook

The southern province of Guangdong drafted a plan for more than 1 trillion yuan ($157 billion) of investment in marine industries, the China Business News reported today, without saying where it got the information. This comes after Xinhua News Agency reported Chongqing municipality plans to boost industrial investment to 1.5 trillion yuan in the five years through 2015. The investment will help Chongqing expand its total industrial output beyond 3 trillion yuan, Xinhua said.

“Provincial and municipal governments are announcing multi-trillion yuan investment programs one after another. But we ask how these programs can be financed?,” Hao Hong, managing director for research at Bocom International Holdings Co., wrote in a note today. “If the government borrows, be mindful of the crowding out effect, both on rising market interest rates and on declining incentives for private investment.”

Earnings Drop

Dongfang Electric Corp., China’s second-biggest maker of power equipment, lost 1.6 percent to 15.77 yuan. The company’s first-half net income fell 19 percent from a year earlier to 1.24 billion yuan from a year earlier, according to a statement to the Hong Kong stock exchange yesterday.

China Shipping Development retreated 2.2 percent to 4.51 yuan. The first-half loss of 495 million yuan compared with a net income of 684 million yuan a year earlier, the company said in a stock exchange filing yesterday.

Anhui Quanchai Engine fell 3.4 percent after Rongsheng Heavy said its unit cancelled a bid for Quanchai Engine’s parent. Rongsheng Heavy, the country’s largest shipbuilder outside state control, reported yesterday an 82 percent drop in first-half profit on weaker demand for new vessels.

Thirty-day volatility on the Shanghai Composite was at 12.1 yesterday, compared with this year’s average of 18.6. About 6.1 billion shares changed hands in the gauge, 24 percent lower than the average volume this year.

The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., dropped 0.5 percent to 34.29, extending its retreat to a fifth day.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net;

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


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