China's Stocks Advance as Slowing Economy May Reverse Tightening Policies

China’s stocks rose, with the benchmark index rebounding from the biggest decline in six weeks, as a slowdown in industrial output growth and new lending spurred speculation the government will ease monetary policy.

Poly Real Estate Group Co. climbed 2.5 percent, the most in two weeks. Production grew the least in 11 months in July, retail growth slowed and new loans climbed less than estimated, according to official data today. Inflation quickened to 3.3 percent, the fastest in 21 months. China Minsheng Banking Corp. added 1.3 percent after reporting higher profit.

The Shanghai Composite Index rose 12.22, or 0.5 percent, to close at 2,607.5. The gauge swung between gains and losses more than 10 times amid concern that rising consumer prices will limit policy makers’ ability to lift lending and property curbs. The CSI 300 Index advanced 0.6 percent to 2,850.21.

“High inflation may force the government to think carefully about policy loosening,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co. “It’s a dilemma for the government, which also pursues a relatively high economic growth rate.”

The Shanghai gauge slumped 2.9 percent yesterday, the biggest decline since June 29, after slower-than-estimated import growth fueled concern the world’s third-largest economy is losing steam.

The benchmark index has advanced 10 percent from this year’s low on July 5 as investors speculated the government would ease property curbs and allow more lending to counter slowing growth. That’s pared 2010 losses to 20 percent, after the government increased down payment requirements on home sales and ordered banks to set aside more deposits as reserves.

Industrial Output

Poly Real Estate, China’s second-largest developer by market value, advanced 2.5 percent to 12.58 yuan. China Vanke Co., the biggest, rose 4.5 percent to 8.32 yuan. Gemdale Corp., the fourth largest, added 2.1 percent to 6.90 yuan.

Industrial production rose 13.4 percent from a year earlier, the statistics bureau said in Beijing today. Output slowed as the government cracked down on real-estate speculation, curbed credit and closed factories to meet energy-efficiency targets.

Chinese banks extended 532.8 billion yuan ($78.7 billion) of new local-currency loans last month, the central bank said on its website today. That compared with the median forecast of 600 billion yuan in a Bloomberg News survey of 23 economists. In June, the amount was 603.4 billion yuan.

M2, the broadest measure of money supply, grew 17.6 percent from a year earlier, the data showed. The economists’ median forecast was 18.5 percent. In June, the gain was 18.5 percent.

Minsheng Profit

Minsheng Banking, the nation’s first privately owned lender, climbed 1.3 percent to 5.46 yuan. The lender reported first-half profit rose 20 percent from a year earlier to 8.9 billion yuan as it increased lending and improved margins. Analysts had forecast profit of 8.04 billion yuan, according to the average of six analysts surveyed by Bloomberg.

Inflation quickened to 3.3 percent, the fastest in 21 months, boosted by a low year-earlier base for comparison and rising food costs, according to the statistics bureau.

Urban fixed-asset investment rose 24.9 percent in the first seven months of 2010 from a year earlier, the statistics bureau said today. That compared with economists’ median estimate of 25.3 percent and a 25.5 percent gain for January-through-June.

Retail sales grew an annual 17.9 percent in July, compared with 18.3 percent in the previous month, the bureau said. Economists had estimated an 18.5 percent increase.

Wuliangye Income

Wuliangye Yibin Co., the nation’s second-biggest maker of white liquor by market value, gained 2.3 percent to 29.58 yuan. The company said its first-half net income climbed 41 percent from a year earlier to 2.3 billion yuan, boosted by contributions from acquisitions last year.

Investors opened 18 percent fewer accounts to trade Chinese stocks during the week ended Aug. 6 as compared with a week earlier, the China Securities Depository and Clearing Corp. said on its website. Investors opened 235,175 accounts during the week, the clearing house, it said.

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

Xinjiang-based companies: Xinjiang Urban Construction Co. (600545 CH) jumped 9.6 percent to 12.83 yuan. Xinjiang Joinworld Co. (600888 CH), a manufacturer of aluminum ingots, climbed 6.8 percent to 18.04 yuan. Xinjiang Tianye Co. (600075 CH), a chemical company, added 6.2 percent to 12.19.

Chinese provinces and cities will invest up to 13 billion yuan in Xinjiang as part of a central government plan to boost economic development, China Securities reported today, citing an unidentified official from the National Development and Reform Commission.

Shanxi Coal International Energy Group Co. (600546 CH) rose 2.2 percent to 20.51 yuan after the coal producer said its first-half net income rose 33 percent from a year earlier.

Taiyuan Heavy Industry Co. (600169 CH), the maker of cranes and other construction machinery, gained 2.8 percent to 13.15 yuan after saying its first-half net income rose 29 percent from a year earlier.

--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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