China’s stocks dropped for the first time in four days, led by developers and raw-material producers, on concern the government will raise borrowing costs and curb lending to prevent the economy from overheating.
Poly Real Estate Group Co. and China Vanke Co., the top two developers, fell more than 1 percent after the China Securities Journal reported interest rates may rise this quarter and traders said the central bank will sell three-year bills tomorrow to drain liquidity. Datong Coal Industry Co., China’s third-largest coal company by capacity, slid 1.1 percent.
“A major proportion of China’s economy is supported by investment that needs loans for sustained growth,” said Yan Ji, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. “The growth rate may come down if financing costs increase.”
The Shanghai Composite Index fell 10.46, or 0.3 percent, to 3,148.22 at the close. The CSI 300 Index declined 0.5 percent to 3,386.95. The Shanghai gauge is down 3.9 percent this year, the most among the world’s 10 biggest stock markets, on concern slower credit growth will slow the expansion at the world’s third-largest economy.
Inflation will be the biggest factor in China’s decision to increase rates, the China Securities Journal reported, citing People’s Bank of China adviser Li Daokui. If the nation’s monthly consumer price index gains more than 3 percent, the government may rates, it said. Li is a member of the central bank’s monetary policy committee. China hasn’t increased borrowing costs since 2007.
“We are still in a period of tightening,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai. “As long as lingering concern about interest-rate increases remains, it will pressure equities and cause jitters among investors.”
A gauge of property stocks slid 1.2 percent, the most among the Shanghai Composite’s five industry groups.
Poly Real Estate, China’s second-largest developer by market value, dropped 2.5 percent to 20.15 yuan. Vanke, the biggest, lost 1.5 percent to 9.46 yuan. Gemdale Corp., the fourth largest, fell 1.9 percent to 13.77 yuan.
Property prices in 70 major Chinese cities climbed the most in almost two years in February. Premier Wen Jiabao has pledged to restrain speculation in the housing market and curb land hoarding and excessive price gains in some cities, using tools including tax and credit policies.
The People’s Bank of China will sell three-year bills tomorrow for the first time since June 2008, traders at three of the nation’s largest banks said. A press officer at the central bank declined to comment.
“The central bank needs to use higher-yielding bills to attract banks so that they won’t make too many loans,” said Xu Xiaoqing, an analyst at China International Capital Corp. “Three-year bills can lock up banks’ cash for longer periods, which will push up money-market rates and bond yields.”
China’s economy may grow 12 percent in the first quarter, the China Securities Journal reported yesterday, citing Fan Jianping, head of the economic forecast department of the State Information Center.
The government has twice this year ordered banks to increase the share of their assets held in reserve. India increased interest rates last month for the first time in almost two years, while Australia’s central bank has raised borrowing costs in five out of the past six meetings.
Datong Coal dropped 1.5 percent to 39.57 yuan as higher rates may reduce loans for investment.
Shandong Dong-E E-Jiao Co., a traditional Chinese herbal medicine maker, led gains for drugmakers, adding 3.7 percent to 30.71 yuan. The company said first-quarter profit may have jumped between 100 percent and 150 percent. It also had its 2010 earnings forecast raised 13 percent and its 2011 profit estimate lifted 17 percent at Shenyin & Wanguo Securities Co.
Yunnan Baiyao Group Co., a manufacturer of traditional Chinese medicines, gained 3.5 percent to 57.10 yuan. Guangzhou Pharmaceutical Co. climbed 4.7 percent to 13.03 yuan.
“The market is turning a bit defensive so some investors are seeking stocks with definite earnings growth such as pharmaceutical companies,” said HSBC’s Yan.
Chongqing Dima Industry Co., a Chinese vehicle maker, surged by the 10 percent daily cap to 8.22 yuan after saying it plans to buy a real estate development business valued at 4.3 billion yuan from its parent through a share swap.
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