China Stocks Fall to Lowest Level Since 2009 on Japan Row, Data

China’s stocks slumped, dragging down the benchmark index to the lowest level since February 2009, after a report on manufacturing signaled a contraction and escalating tensions with Japan threatened trade.

Dongfeng Automobile Co., which makes light trucks in China with Nissan Motor Co., slumped to the lowest level since November 2008 as a Japanese auto group said protests over disputed islands will hurt sales of the nation’s cars in China. Jiangxi Copper Co. and Aluminum Corp. of China Ltd., the biggest copper and aluminum producers, led declines for metal stocks after a HSBC Holdings Plc and Markit Economics survey showed factory output may contract for an 11th month in September.

The Shanghai Composite Index (SHCOMP) fell 2.1 percent to 2,024.84 at the close, the most among Asia’s benchmark indexes. The CSI 300 Index (SHSZ300) dropped 2.2 percent to 2,195.95, with eight of 10 industry groups losing more than 2 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slid 1.3 percent. The Bloomberg China-US 55 Index (CH55BN) added 1.4 percent.

“There’s concern the islands incident may escalate and exports may be impacted,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today. “The economic data don’t look good. The stock market won’t improve in the near term with these concerns.”

The Shanghai Composite has fallen 8 percent this year amid speculation concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The gauge is valued at 9.3 times estimated earnings, compared with the 17.5 average since Bloomberg began compiling the weekly data in 2006.

Trade Concerns

The Shanghai index is headed for a fifth week of losses in six weeks amid concern tensions between China and Japan over disputed islands risk bilateral trade that has tripled in the past decade to more than $340 billion. China and Japan are the world’s second- and third-biggest economies.

The recent plunge in stocks reflects concern about possible deteriorating trade between China and Japan, Gao Ting, chief China strategist at UBS Wealth Management, said at a media briefing in Shanghai today.

“It’s one of the important factors impacting the market now,” Gao said. “China’s machinery and textile industries may be affected most as they have a big proportion of their exports going to Japan.”

Guangzhou Automobile Group Co., which has joint ventures with Toyota Motor Corp. and Honda Motor Co., dropped 3.8 percent to 5.28 yuan, a record low. Dongfeng Automobile retreated 1.8 percent to 2.70 yuan, the lowest close since Nov. 12, 2008.

Flash PMI

China should make all possible preparations in regard to its territorial dispute with Japan over islands in the East China Sea, including for military conflict and “even war,” Wang Xiaoxuan, director of the Naval Research Institute of the People’s Liberation Army, wrote in the China Daily today.

China CSSC Holdings Ltd., China’s largest listed shipbuilder, surged 6.4 percent to 21.10 yuan.

The preliminary reading was 47.8 for a purchasing managers’ index released today by HSBC and Markit Economics. It compares with the 47.6 final reading last month and if confirmed would extend the gauge’s longest streak below the expansion- contraction dividing line of 50 in the survey’s eight-year history.

The report, called the Flash PMI, suggests Premier Wen Jiabao may need to roll out more stimulus to reduce the risk he will miss the year’s economic-growth target for the first time since taking office in 2003. Barclays Plc and Morgan Stanley are among banks estimating that China’s expansion will cool to 7.5 percent, which would be the weakest pace since 1990.

Coal Producers

Jiangxi Copper declined 3.8 percent to 21.89 yuan, the biggest drop since July 30. Aluminum Corp. of China slumped 2.8 percent to 4.96 yuan, a record low. Copper futures fell 1.2 percent in London, while tin sank 2.7 percent.

“The recent rally has damped demand on the spot market as more poor manufacturing data showed the economy isn’t turning better,” Xie Xiaoming, an analyst at Shengda Futures Co., said from Guangzhou.

China Shenhua Energy Co., the biggest coal producer whose Hong Kong-listed shares were cut to underperform at Jefferies Group Inc., slid 2.8 percent to 21.28 yuan, leading a gauge of energy producers to the biggest decline among industry groups. China’s top coal-producing regions have cut August output as an economic slowdown and more imports curbed local prices to near the lowest level in 34 months.

“As far as we are concerned, the market has already discounted the economic slowdown in China,” Joseph Portelli, chief investment officer at FMG (Malta) Ltd., said in an interview yesterday. “The Chinese central bank will do everything it possibly can to stimulate the Chinese economy going into this political cycle.”

China Congress

The 18th National Congress of the Communist Party of China will start on Oct. 10, the Hong Kong Economic Journal reported, citing unidentified people familiar with the situation. Vice President Xi Jinping is expected to succeed President Hu Jintao as head of the party at the congress as part of a once-a-decade leadership change.

China’s central bank has left benchmark interest rates unchanged since July on concern that inflation is accelerating even as economic growth drops to a three-year low. Policy makers have also kept bank reserve requirements at 20 percent since May, and have allowed money-market rates to surge before the week-long National Day holiday starting Oct. 1.

Japanese automobile sales in China will be hurt next month as escalating tensions deter consumers, according to the Japan Automobile Manufacturers Association. Japanese automakers are making employee safety in China the top priority and are monitoring the situation closely, said Akio Toyoda, president of Toyota Motor and chairman of the auto association.

Japan Dispute

Volkswagen AG’s luxury Audi unit asked a Chinese dealer to remove a banner advocating the murder of Japanese people after a photograph of the sign went viral on the Internet.

The anti-Japan message captured in the photo of the unidentified dealership doesn’t reflect Audi’s views, said Lu Minjie, a spokeswoman at FAW-Volkswagen Automotive Co., the venture that makes Audi-brand cars in China. Audi, which counts China as its biggest market, asked its dealers to be reasonable in expressing patriotism, she said.

Japan’s exports fell 5.8 percent in August from a year earlier, the third straight decline, the Finance Ministry said in Tokyo today. China’s share of Japanese exports doubled over the decade to 20 percent.

New China Life Insurance Co. slumped 7.2 percent to 22.91 yuan, a record low, after the company’s insurance premium income Fell 6.1 percent last month.

Officials from the Shanghai and Shenzhen stock exchanges are visiting Europe, Japan and the U.S. to try to attract investors to their bourses as China’s economy slows, the Financial Times reported, citing three people briefed on the plan.

-- Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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