China’s Stocks Decline Most in Eight Weeks on Concern Slowdown Will Worsen

China’s stocks fell, driving the benchmark index to its biggest loss in three weeks, on concern a slowdown in the economy is hurting earnings as Europe’s debt crisis curbs exports to the nation’s biggest market.

Air China Ltd., the nation’s biggest international carrier, and China Shipbuilding Industry Co, slid more than 3 percent after the Chinese government said industrial production is likely to slow this quarter. GF Securities Co. and Haitong Securities Co. lost at least 3 percent after posting weaker earnings. Jiangxi Copper Co. slumped 1.6 percent as metal prices fell on concerns about receding demand from China.

“The market is pessimistic about China’s growth,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “The European debt issue threatens the country’s exports.”

The Shanghai Composite Index fell 39.2 points, or 1.7 percent, to 2,291.90 at the close, the biggest loss since Jan. 16. The measure trades at 9.4 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg. The CSI 300 Index declined 1.9 percent to 2,457.95. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 2.1 percent yesterday in New York.

The Shanghai Composite has rebounded 4.2 percent this year, after plunging 33 percent in the previous two years, on speculation the central bank will further cut lenders’ reserve- requirement ratios to spur lending to small companies. The People’s Bank of China announced on Nov. 30 a cut in reserve ratios, the first reduction since 2008. It raised interest rates three times and lifted reserve ratios six times last year to cool inflation that accelerated to its fastest pace in three years in July.

Industrial Output

A gauge of industrial companies in the CSI 300 slumped 2 percent, the most since Jan. 13. Air China declined 4.1 percent to 6.50 yuan. China Shipbuilding slumped 3.3 percent to 5.36 yuan. Cosco Shipping Co. retreated 2 percent to 4.34 yuan. FAW Car Co., which makes passenger cars in China with Volkswagen AG, lost 3 percent to 8.75 yuan.

China’s industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens, the Ministry of Industry and Information Technology said. Output grew 13.9 percent in 2011 from the previous year, according to the statistics bureau. The government is targeting an 11 percent increase this year.

“The global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said in a statement in Beijing today.

IMF Warning

Concerns about the outlook for China’s economy have increased after the International Monetary Fund warned yesterday the expansion would be cut almost in half should Europe’s debt crisis worsen. China’s growth rate may drop as much as 4 percentage points from the Washington-based lender’s current projection, which is for 8.25 percent this year, the IMF said.

Europe is China’s biggest export market with 18 percent of the nation’s overseas shipments destined for the region, according to Shenyin & Wanguo Securities Co.

Jiangxi Copper, China’s biggest producer of the metal, fell 1.6 percent to 24.80 yuan. Tongling Nonferrous Metals Group Co., the second largest, lost 1.6 percent to 19.75 yuan. Copper futures dropped as much as 0.8 percent to $8,430 a metric ton on the London Metal Exchange.

‘Hard Landing’ Risk

A “hard landing” for China is a key risk for the global economy, Andrew Colquhoun, Hong Kong-based head of Asia-Pacific ratings for Fitch Ratings, said in an e-mail. His definition was growth “significantly lower” than the rating company’s “base case” of an 8.2 percent expansion in 2012.

Chinese exports may drop 1.4 percent in January from year- ago levels, compared with a 13.4 percent advance the previous month, according to economists’ estimates compiled by Bloomberg. The trade data is scheduled for Feb. 10. Consumer prices rose 4 percent in January, compared with a 4.1 percent gain in December, estimates show. The inflation data is due to be released on Feb. 9.

European leaders stepped up pressure on Greek politicians to meet the conditions of a 130 billion euro ($171 billion) bailout, saying time was running out.

Earnings Slump

French President Nicolas Sarkozy met German Chancellor Angela Merkel as Greek interim Prime Minister Lucas Papademos planned to confer with the so-called troika of international lenders. A gathering of Greece’s political leaders was delayed by a day until today as they struggled for a unified response.

Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, lost 1.8 percent to 4.99 yuan. Chinese steelmakers’ earnings may have decreased more than 50 percent in 2011 as companies took charges on inventory impairment, according to Citic Securities Co.

GF Securities tumbled 5.2 percent to 23.30 yuan after the brokerage said it had a net loss of 89.9 million yuan in January. Haitong Securities retreated 2.8 percent to 8.21 yuan. Profit dropped 53 percent from a year earlier last month, the company said in a statement.

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

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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