Chinese Stock Indexes Reach 2-Month Highs; Valin Steel Gains

China's key stock indexes rose to their highest in almost two months after financial regulators said they will tighten rules governing loan guarantees. Steelmakers such as Hunan Valin Steel Tube & Wire Co. led gains.

The China Securities Regulatory Commission and the China Banking Regulatory Commission said in a jointly published notice today that public companies must get approval from board members or shareholders before issuing guarantees for loans, starting next year.

``This is good news for the market, as it helps improve the quality of listed companies,'' said Liu Lifeng, a fund manager of BOC International (China) Ltd. ``Illegal guarantees have been the cause of many financial woes in the past.''

The Shanghai Composite Index, which covers yuan-denominated A shares and foreign-currency B shares, rose 9.63, or 0.9 percent, to 1144.87 at the 3:00 p.m. local time close. The Shenzhen Composite Index, which tracks the smaller market, gained 2.68, or 1 percent, to 275.85. The indexes last closed higher on October 13 in Shanghai and October 25 in Shenzhen.

Stocks also rose after Li Rongrong, China's top asset regulator, yesterday said the government will urge state-owned companies to list overseas before listing on the domestic markets, alleviating investor concern that share sales by Bank of China and other large state-owned companies would soak up liquidity.

Overseas Listing

``Li's remarks yesterday are a clear sign that the central government considers market stability a priority,'' said Yan Ji, who helps manage the equivalent of $720 million at First-Trust Fund Management Co. in Shanghai. ``It's a great relief to investors who are concerned that the market will suffer short- term capital shortages once regulators resume initial public offerings.''

China has suspended public share sales since May, when the government revived a twice-scrapped program to convert about $210 billion of non-tradable, mostly state-owned stockholdings in public companies into common stock that can be traded on the stock exchanges.

To stem stock market declines, the government is also expanding its so-called qualified foreign institutional investor, or QFII, program, to let more foreigners invest in yuan- denominated securities.

China's foreign currency regulator said toward market close that Temasek Holdings Pte, a Singapore state-owned investment company, won approval to invest $100 million in China's bonds and stocks, while AIG Global Investment Corp. was approved to invest $50 million.

Steelmakers

Steelmakers such as Hunan Valin Steel led gains. The company, which is 36.7 percent owned by Mittal Steel Co., the world's biggest steel producer, rose 0.10 yuan, or 2.1 percent, to 4.94. Baoshan Iron & Steel Co., China's biggest steelmaker, rose 0.01 yuan, or 0.3 percent, to 3.94.

The U.S. has requested the Chinese government start formal talks on steel to prevent disputes arising from cheaper imports, Frank Lavin, Under Secretary for International Trade at the U.S. Department of Commerce, told reporters in Beijing yesterday. The discussions should focus on issues such as tax subsidies, he said.

Separately, shares of Shenzhen Zhongjin Lingnan Nonfemet Co. slumped as much as 10 percent, the most allowed in a day, after China's third-biggest zinc producer said it shut all its output, including zinc and lead, at its Shaoguan Smelter from Dec. 21 because the discharge of toxic chemical cadmium into a river in China's southern Guangdong province exceeded safety levels. The stock dropped 0.23 yuan, or 3.4 percent, to 6.51.

China Minsheng Banking Corp. gained after getting shareholders approval for a bond sale. Minsheng, the nation's first privately owned lender, plans to sell as much as 30 billion yuan ($3.7 billion) of bonds by June 2007 to improve asset liquidity after winning shareholder approval for the sale, it said in a statement to the Shanghai Stock Exchange today. The stock rose 0.03 yuan, or 0.7 percent, to 4.19.

To contact the reporter on this story: Samuel Shen in Shanghai at sshen3@bloomberg.net

To contact the editor responsible for this story: Bruce Grant in Hong Kong at bruceg@bloomberg.net

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