Stocks Fall in China For First Time in 3 Days; Industrial Companies Slide

China’s stocks dropped for the first time in three days, led by industrial companies and energy producers, as concern the government will step up tightening measures overshadowed rising earnings.

China First Heavy Industries Co. and China Erzhong Group Deyang Heavy Industries Co. fell more than 1 percent after UBS AG said China will “intensify” enforcement on land policies. China Coal Energy Co. declined among energy producers after the government said it will extend a resources tax to the entire nation. China Merchants Bank Co. gained 0.5 percent after saying first-half net income probably jumped more than 50 percent.

“It’s only illusion among investors that the government will ease tightening measures soon,” said Yan Ji, who helps oversee about $1.5 billion at HSBC Jintrust in Shanghai. “For the property market, the crackdown isn’t likely to be relaxed within two years. A slowdown is certain.”

The Shanghai Composite Index declined 5.97, or 0.3 percent, to close at 2,415.15, erasing earlier gains and snapping a two- day, 2.5 percent rebound. The CSI 300 Index slipped 0.2 percent to 2,575.92.

The Shanghai Composite, Asia’s worst performer, has slumped 26 percent this year on concern government efforts to curb inflation and property speculation will slow growth at the world’s third-largest economy. Shares have also fallen as China’s biggest banks announced as much as $54.5 billion in fundraising after extending record loans last year.

Bank IPO

Agricultural Bank of China Ltd. is raising $19.2 billion in what may be the world’s largest initial public offering, according to people with knowledge of the pricing for Hong Kong and Shanghai.

China may allow foreign companies to sell shares in Shanghai next year, Fang Xinghai, director general of Shanghai’s financial services office, said in a Bloomberg TV interview.

China First Heavy, a maker of equipment used in the mining and energy industries, dropped 1.3 percent to 5.40 yuan. China Erzhong, an equipment supplier to power producers, lost 2.9 percent to 9.30 yuan. Hebei Iron & Steel Co., the listed unit of China’s biggest steelmaker, fell 0.8 percent to 3.68 yuan.

The government has signaled it is “not about to reverse current policies, but intensify enforcement into the second half,” UBS analyst Eric Wong wrote in a note dated today. The lands ministry will ensure 70 percent of land supply is used for economic housing, investigate land hoarding and more strictly monitor terms of land sales, Wong wrote.

Property Curbs

Authorities stepped up a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007.

Deputy central bank Governor Ma Delun said the People’s Bank of China’s monetary policy faces many new challenges as its focus moves from money supply to controlling inflation, the Shanghai Securities News reported.

China’s wages will increase by an average of between 15 percent and 20 percent annually for unskilled labor in the next five to 10 years, according to Citigroup Inc. analyst Eddie Lau in a report today. The rise in income should boost discretionary spending, benefiting department stores and distributors of appliances, according to the report.

China Coal, the nation’s second-largest coal producer, slid 1.1 percent to 8.43 yuan. Yanzhou Coal Mining Co., the listed unit of China’s fourth-biggest coal miner, retreated 1.3 percent to 15.90 yuan. PetroChina Co., the nation’s biggest oil company, slipped 0.3 percent to 10.38 yuan.

Resources Tax

The rate of the tax on oil, gas and coal extractions will be set at 5 percent and will vary across commodities, Du Ying, vice chairman of the National Development and Reform Commission, said in Beijing today. It’s “unclear” when the tax will be extended beyond Xinjiang province, Du said.

China introduced a 5 percent resources tax based on prices instead of volume in Xinjiang June 1, and is planning to broaden the levy to cover all western provinces.

Merchants Bank, the nation’s fifth-largest, climbed 0.5 percent to 13.21 yuan. The company said profit rose on wider margins and higher income.

Other companies with positive earnings gained. Anhui Heli Co., a machinery maker, jumped 6 percent to 13.08 yuan after saying first-half net income may rise as much as 33-fold from a year earlier. Dongfeng Automobile Co. which makes light trucks with Nissan Motor Co., rallied 3.3 percent to 4.69 yuan. The company said first-half net income will more than triple.

Around 54 percent of A share companies’ first-half guidance indicate year-on-year net income growth of more than 50 percent, UBS AG’s Hong Kong-based strategist John Tang wrote in a report July 6.

Stock Rebound

The CSI 300 is in a “good position” to rebound after dropping more than any other Asian stock measure this year, according to technical analysis by Nomura Holdings Inc.

The CSI 300 has touched the bottom band that marked its downward trend this year and may rebound should that band hold, Nomura analysts Kenneth Chan, Tacky Cheng and Desmond Chan wrote in a report yesterday. The gauge’s relative strength index also suggests Chinese stocks are “oversold” while the 2,500 level is a “good reference for medium-term support,” according to the analysts.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Anhui Jianghuai Automobile Co. (600418 CH), a unit of China’s biggest light-truck exporter, gained 4.8 percent to 6.84 yuan after saying its sales of heavy trucks in June rose 110 percent from a year earlier to 2,368 units.

Tianjin Reality Development (Group) Co. (600322 CH) surged the 10 percent daily cap to 4.58 yuan after the Chinese property developer said first-half profit at least doubled.

--Zhang Shidong. Editors: Richard Frost, Reinie Booysen

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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