China’s stocks (SHCOMP) fell, sending the benchmark index to a six-week low, after non-manufacturing industries contracted as the government’s curbs on property and lending damped demand.
Anhui Conch Cement Co. (600585), China’s biggest maker of the building material, and Hebei Iron & Steel Co. dropped at least 2 percent after a purchasing managers’ index shrank for the first time since February. China Vanke Co. (000002) and China Merchants Property Development Co. retreated among property companies after the central bank said developers are facing tighter credit conditions.
“The economy is on a downtrend and the question is how slow growth will be next year with the weakness in the property market and exports,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The slower economic growth becomes, the earlier we’ll see the government relax monetary policy.”
The Shanghai Composite Index (SZ399006) sank 27.44 points, or 1.2 percent, to 2,333.23 at the close, the lowest level since Oct. 21 and extending four straight weeks of losses. The CSI 300 Index (SHSZ300) fell 1.4 percent to 2,521.39. The ChiNext index of start- up companies tumbled 4.4 percent to its lowest close since Oct. 24. The Bloomberg China-US 55 Index, the measure of the most- traded U.S.-listed Chinese companies, retreated 0.8 percent in New York on Dec. 2.
The Shanghai Composite slid 0.8 percent last week as manufacturing contracted for the first time since February 2009 in November. The gauge is valued at 11.1 times estimated earnings, compared with a six-year average of 18.3 times, according to weekly data compiled by Bloomberg.
The index has tumbled 17 percent this year, extending last year’s 14 percent loss, after the central bank raised interest rates and lenders’ reserve-requirement ratios to curb inflation.
A purchasing managers’ index for November fell to 49.7 from 57.7 the previous month, the China Federation of Logistics and Purchasing said in a Dec. 3 statement. A reading above 50 indicates expansion. The gauge covers industries including construction, retail, and property.
“Investment in infrastructure and real estate is playing a smaller role in driving the economy,” Cai Jin, vice chairman of the logistics federation, said in the statement. A separate PMI service index fell to 52.5 from 54.1 in October, according to a statement from HSBC Holdings Plc and Markit Economics.
An index of materials producers in the CSI 300 slipped 2.3 percent. Anhui Conch, China’s biggest cement maker, dropped 2.4 percent to 16.45 yuan. Huaxin Cement Co. (600801), an affiliate of Holcim Ltd., lost 5.8 percent to 14.39 yuan, the most in three months. Hebei Steel, the listed unit of the country’s biggest steelmaker, retreated 2 percent to 3.43 yuan. Angang Steel Co. slid 1.2 percent to 4.77 yuan.
Profit margins from product sales at 77 large and medium- sized Chinese iron and steel companies was 0.47 percent in October, the Economic Information Daily reported, citing Luo Bingsheng, a deputy party secretary of the China Iron and Steel Association. Total profit dropped 82.6 percent in October compared with a month earlier, Luo said.
“The turning point of property prices is emerging,” the People’s Bank of China said in a Dec. 2 statement after the market closed. It noted that property investment growth has eased from a “high level” and that developers are facing tighter credit conditions. Banks and property developers could cope with a 20 percent to 30 percent decline in home prices, according to the statement.
Vanke, the nation’s biggest listed property developer, fell 1.2 percent to 7.29 yuan. Merchants Property (000024) lost 1 percent to 16.71 yuan.
China may extend restrictions on purchasing properties in selected cities when the orders expire around the end of the year, Cb.com.cn, the website of the China Business Journal, reported over the weekend, citing an unidentified official at the Ministry of Housing and Rural Development.
It may take between three and six months for new lending and monetary supply to increase after last week’s reduction in reserve requirement ratio, Hou Zhenhai, an analyst at China International Capital Corp, wrote in a note dated yesterday. Stocks may rebound in spring next year on a rebound in new loans and M2, according to the report.
The economic slowdown could lead to social unrest and the country’s provincial officials need to find ways to prepare for the negative effects of the market economy, the Financial Times reported today, citing Zhou Yongkang, a member of the Communist Party of China’s Politburo.
A gauge tracking Shenzhen-listed small and medium-size companies slid 3.4 percent to a level not seen since July 2010.
China’s central bank reduced lenders’ reserve requirements on Nov. 30 for the first time since 2008. Premier Wen Jiabao has pledged to “fine-tune” economic policies to sustain growth amid a deepening debt crisis in Europe that threatens to trigger a global recession.
China’s central bank will periodically loosen monetary policy while maintaining a prudent stance, the People’s Daily cited Ba Shusong, a researcher at the State Council’s Development Research Center, as saying.
Government debt, which may have risen to 20 trillion yuan ($3.14 trillion) by the end of 2010, or about 50 percent of its gross domestic product, is becoming a major constraint on its economic growth, research firm Beijing Fost Economic Consulting Company Ltd. said in a report dated Dec. 3.
European leaders will meet this week to seek to resolve the region’s sovereign-debt crisis. Two people familiar with the negotiations said a proposal to channel European Central Bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($268 billion) to fight the crisis.
--Zhang Shidong. Editors: Richard Frost, Darren Boey
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