China's Stocks Fall, Erasing Gains; Developers Drop, Coal Producers Climb

China stocks fell as developers dropped amid speculation the government will issue new measures to avert a property bubble, overshadowing gains by energy producers after manufacturing rose for a second month.

China Vanke Co. dropped to a two-month low after Credit Suisse Group AG said regulators will implement a property tax. China Shenhua Energy Co. gained the most in three weeks as a purchasing managers’ index rose to the highest level in five months in September. Jiangxi Copper Co., the nation’s biggest copper producer, surged 4.2 percent after metal prices rose.

“There’s still caution ahead of holidays and the market is concerned the government may introduce further tightening measures,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co.

The Shanghai Composite Index dropped 0.68, or less than 0.1 percent, to close at 2,610.68, erasing an earlier 0.9 percent advance. Chinese markets will be closed from Oct. 1 to Oct. 7 for National Day holidays. The CSI 300 Index slipped 0.2 percent to 2,874.81.

The Shanghai index has plunged 20 percent this year, the world’s third-worst performer, as the government imposed tightening measures ranging from restrictions on multi-house purchases to a 22 percent cutback on annual new lending by banks. The gauge has climbed 10 percent from this year’s low on July 5 on signs the nation’s economic slowdown is stabilizing.

Property Tax

An index tracking real-estate companies lost 0.5 percent, extending yesterday’s 1 percent decline. Vanke, the nation’s biggest listed developer, fell 1 percent to 7.81 yuan, the lowest since July 21. China Merchants Property Development Co. slid 1.5 percent to 16.25 yuan. Citichamp Dartong Co., a Fujian- based developer, sank 1.2 percent to 8.93 yuan.

The government may implement a property tax in some cities soon with Shanghai, Shenzhen and Chongqing the most likely candidates, according to Credit Suisse.

Credit Suisse recommended “reducing exposure” to Chinese property stocks in the near term, saying a tax would hurt real- estate market sentiment and property stocks’ performance, analysts led by Jinsong Du wrote in a note to clients.

An index tracking energy producers jumped 2.2 percent, the most since Sept. 6 and the biggest advance among the CSI 300’s 10 industry groups. Shenhua, the nation’s largest coal producer, rose 2.7 percent to 23.26 yuan. China Coal Energy Co., the second biggest, advanced 2.2 percent to 9.69 yuan. Datong Coal Industry Co., the third biggest, rallied 6.4 percent to 16.41 yuan.

Manufacturing Index

A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics rose to 52.9 from 51.9 in August. The data are seasonally adjusted and a reading above 50 indicates an expansion.

A separate government-backed PMI is scheduled to be released on Oct. 1. The index, released by the National Bureau of Statistics and the Federation of Logistics and Purchasing, may rise to 52.5 from an August reading of 51.7, according to median forecast of 15 economists surveyed by Bloomberg News.

Signs of easing restrictions on power usage also lifted coal companies. The index of energy producers has lost 2.8 percent this month, the second-biggest decline among the 10 industry groups, as the government restricted power to steel mills and shut small power generators to meet energy usage targets.

China’s goal is to cut energy consumption per unit gross domestic product by 20 percent in the five years through 2010. Energy intensity rose 0.09 percent in the first six months compared with a year earlier.

Steel Mills

Shanxi province may lift power restrictions on some mills soon, according to Shanxi Jincheng Steel Holding Group Co., a closely held steelmaker. Some producers in the city of Wu’an in Hebei province partially resumed production after 20 days of stoppage on power restrictions, the China Securities Journal said, citing unidentified company officials.

Some steelmakers have continued production and even boosted output amid government measures to curb overcapacity, including power restrictions, the 21st Century Business Herald reported today, citing an unidentified person at the China Iron & Steel Association.

Vale SA, the world’s biggest exporter of iron ore, said demand in China hasn’t been affected by government measures to curb overcapacity in its steel industry.

Jiangxi Copper climbed 4.2 percent to 30.13 yuan. Tongling Nonferrous Metals Group Co., the second biggest, added 1.9 percent to 17.41 yuan. Jinduicheng Molybdenum Co., Asia’s largest producer of the metal used to harden steel, gained 0.3 percent to 17.52 yuan.

The London Metal Exchange Index of prices for six industrial metals advanced 0.6 percent yesterday. Copper futures in New York jumped 1.1 percent while gold futures gained 0.7 percent to a record.

Aluminum Corp. of China Ltd., also known as Chalco, rallied 7.5 percent to 11.70 yuan, extending yesterday’s 10 percent jump, after its parent announced a plan to invest at least 10 billion yuan ($1.5 billion) in rare earths.

--Zhang Shidong. Editors: Richard Frost, Allen Wan

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

To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

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