China Stocks Fall Most in Two Weeks as Loan Curbs Maintained

China’s stocks fell, with the benchmark index declining the most in two weeks, after the government quashed speculation it will abandon real-estate curbs that drove property prices lower for the first time in 16 months.

China Vanke Co. and Bank of China Ltd. dropped among developers and lenders after the government said it will “strictly” enforce housing policies to prevent speculative real estate investment. Jiangxi Copper Co., China’s biggest producer of the metal, slid 3.1 percent, ending five days of gains, while China Shenhua Energy Co. retreated 2.3 percent.

“It’s hard to believe that the government would reverse its crackdown on the property industry so quickly and anyone who hoped so is now disappointed,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 40.43, or 1.6 percent, to 2,450.29 at the close, the biggest decline since June 29. The CSI 300 Index fell 1.6 percent to 2,634.59.

The Shanghai Composite jumped 3.7 percent last week, the most this year, on speculation the government will adopt a looser monetary policy. The gauge has slumped 25 percent in 2010, making it Asia’s worst performer, on concern government efforts to curb inflation and property speculation will slow the economy.

China’s property prices fell 0.1 percent in June from the previous month, ending 15 months of gains, statistics bureau data showed yesterday. New lending of 603 billion yuan ($89 billion) last month was the least in three months, the central bank said July 11.

Property Curbs

The Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative purchases and increase market supply. The statement was in response to media reports that said China may abandon its current property policies, it said.

China’s banking regulator said it has made no changes to policies on home loans, according to a statement late yesterday. The regulator called on commercial banks to strictly enforce home loan rules, it said.

Vanke, the nation’s biggest developer, fell 2.4 percent to 7.46 yuan. Price cuts by Vanke have been among signs the market is cooling as the government cracks down on speculation. Poly Real Estate Group Co., the second largest, dropped 4.3 percent to 11.33 yuan.

A measure of property stocks on the Shanghai Composite slumped 3.2 percent, the most among the five industry groups. The real-estate gauge jumped 2.6 percent yesterday after the Southern Metropolis Daily reported China may loosen curbs on third-home loans. Some Chinese banks have eased standards for mortgage lending, at least on a case-by-case basis, Credit Suisse Group AG said in a report yesterday.

Banks Retreat

Bank of China, the nation’s third-biggest listed lender, retreated 1.7 percent to 3.51 yuan. Industrial & Commercial Bank of China Ltd., the largest, lost 1.2 percent to 4.25 yuan.

Shanghai-based commercial banks have maintained second-home loan curb policies which have not been loosened, the Shanghai Banking Association said yesterday. The Oriental Morning Post reported July 8 that some commercial banks based in the city have eased policies for second-home buyers.

Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down- payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.

China needs to “normalize” monetary policy to stablize economic growth, the China Business News reported Wu Xiaoling, a former People’s Bank of China deputy governor, as saying. Wu called last year’s policy “extremely loose,” the report said.

Property ‘Collapse’

“The government isn’t likely to relax tightening measures as it wants to transform the country’s growth model to focus on consumption rather than investment,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai.

Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.

Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.

Jiangxi Copper, China’s biggest producer of the metal, slid 3.1 percent to 24.51 yuan, snapping a five-day, 13 percent rally. Aluminum Corp. of China Ltd. dropped 2.2 percent to 8.94 yuan. Baoshan Iron & Steel Co., the listed unit of China’s second- biggest steelmaker, declined 2.8 percent. Shenhua, the largest coal producer, retreated 2.3 percent to 21.77 yuan.

Copper decreased as much as 0.9 percent in London and aluminum fell 0.6 percent. Crude oil dropped as much as 0.9 percent in New York.

Waste Leak

Zijin Mining Group Co., the country’s largest gold producer, tumbled 3.7 percent to 5.76 yuan. The company said it has suspended stockpiling of ore at the Zijinshan mine after waste water containing acidic copper leaked into a nearby river. The incident has had a “substantial effect” on copper production at the mine, it said.

Royal Bank of Scotland Group Plc said it sees a “buying opportunity” in China’s yuan-denominated shares as equity supply may ease in the second half compared with the first six months of 2010 and as investors become “less concerned” about policy risks.

“It should become apparent in the coming months that Beijing is less concerned about inflation or asset bubbles for the rest of 2010,” RBS analysts led by Wendy Liu wrote in a report yesterday.

Agricultural Bank

Agricultural Bank of China Ltd., which begins trading in Shanghai on July 15 and in Hong Kong the day after, raised $19.2 billion in the world’s biggest initial public offering in four years.

Companies may raise about 500 billion yuan in initial public offerings in Shanghai and Shenzhen this year, more than in any other country, PricewaterhouseCoopers said July 5.

China doesn’t plan to delay or suspend initial share sales in Shanghai or Shenzhen, the China Securities Journal said, citing an unidentified official at the China Securities Regulatory Commission. The comments refute media reports saying China is considering suspending new IPOs to stem further declines in the stock market, it said.

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

GD Power Development Co. (600795 CH), the largest electricity producer in northeastern China, added 1.5 percent to 3.39 yuan. The power producer said its electricity generation in the first half of this year rose 15 percent to 49.3 billion kilowatt hours.

Orient International Enterprise Ltd. (600278 CH) rose by the 10 percent daily limit to 10.01 yuan after the company said it will sell 81.7 million shares to its parent in exchange for garment and logistic businesses valued at 997 million yuan.

Pingdingshan Tianan Coal Mining Co. (601666 CH), the listed unit of China’s fifth-largest producer of the coal, gained 2.8 percent to 14.75 yuan after saying first-half net income increased 44.5 percent from a year earlier to 1.27 billion yuan.

Tiancheng Co. of Taiyuan University of Technology (600392 CH), a manufacturer of electronic equipment, lost 1.8 percent to 17.10 yuan after saying its shareholder Shanxi Hongzhan Guarantee Co. reduced its stake in the company.

--Zhang Shidong. Editors: Richard Frost, Linus Chua

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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