China Stocks Fall Most in Three Weeks as Financial Shares Slump

Photographer: Qilai Shen/Bloomberg

Mugs of tea and drinks sit in front of a board showing stock prices in Shanghai. Close

Mugs of tea and drinks sit in front of a board showing stock prices in Shanghai.

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Photographer: Qilai Shen/Bloomberg

Mugs of tea and drinks sit in front of a board showing stock prices in Shanghai.

China stocks fell, dragging the CSI 300 Index (SHSZ300) down the most in three weeks, as banks tumbled on concern new wealth-management product rules will hurt earnings and as the government signaled more flexible interest rates.

Industrial Bank Co. lost 9.2 percent, while China Minsheng Banking Corp. declined 7.6 percent, leading a gauge of financial companies to an 11-week low. A directive from the banking regulator for lenders to limit the investment of client funds in debt that isn’t publicly traded will hurt revenue for some banks by 2 percent, according to a Citic Securities Co. report today.

“The regulation will hurt banks’ profits,” Zhou Lin, an analyst at Huatai Securities Co., said by phone from Nanjing. That will drag on stocks because “banks have a big weighting” on benchmark indexes, he said.

The Shanghai Composite Index (SHCOMP) sank 2.4 percent to 2,245.57 at 10:27 a.m. local time. The CSI 300 Index, which tracks stocks in Shanghai and Shenzhen, tumbled 2.9 percent, the most since March 4, to 2,508.96. Hong Kong’s Hang Seng China Enterprises Index dropped 1.7 percent.

The CSI 300 Financials Index slumped 4.7 percent, the most since March 4 and the biggest drop among the CSI 300’s 10 industry groups. The rule to cap investment by Chinese banks’ wealth management products in non-exchange traded products will reduce growth of total social financing, leading to pessimistic expectations about economic recovery, analysts led by Mao Changqing at Citic Securities wrote in a report today.

Banks also fell on concern the government will relax or remove a cap on deposit rates or the floor on lending rates. China will introduce new measures to promote “interest-rate and exchange-rate liberalization,” the State Council, or cabinet, said in a statement yesterday.

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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