China Stocks Rally on Economic Reform Prospects; Developers Gain

Chinese stocks rallied, capping the longest streak of weekly gains in four months, on speculation the government will accelerate economic reforms.

Poly Real Estate Group Co. and Gemdale Corp. led a gauge of property companies to the biggest advance among industry groups on the prospect the government won’t impose more real-estate curbs as the economy slows. Sanan Optoelectronics Co. paced an advance for technology companies, surging 7.4 percent. The nation’s economic planning agency said investment projects for airports and gas fields won’t need pre-approval any more. Xi Jinping’s government has set up working groups to draft fiscal changes and financial restructuring, Caixin Online reported.

“There’s speculation President Xi is coming up with detailed reform plans,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said by phone today. “There’s a lot of expectations for a restructuring of the economy that would benefit the market in the future.”

The Shanghai Composite Index (SHCOMP) rose 1.4 percent to 2,282.87 at the close, extending this week’s gain to 1.6 percent. The CSI 300 added 1.5 percent to 2,592.05. The Bloomberg China-US Equity Index lost 1 percent yesterday. Hong Kong’s markets are shut today for a holiday.

The Shanghai measure has fallen 6.2 percent from this year’s Feb. 6 peak amid concern the decelerating economy will curb profits. Manufacturing slowed last month, while growth in industrial production and fixed-asset investment trailed economists’ forecasts.

Property Outlook

Shanghai’s property stocks gauge advanced 2.5 percent today, adding to a 3.7 percent rally for the week, the best performance among five industry groups. China Vanke Co., the largest listed developer, gained 3.9 percent to 12.16 yuan. Poly Real increased 2.6 percent to 12.38 yuan.

“With the economy slowing, investors expect the government to ease property curbs or at least it’s very unlikely for the government to issue more tightened policies,” Zhu Jixiang, a Shanghai-based analyst at CSC International Holdings Ltd., said in a phone interview today. “After all, the local government relies heavily on the real estate sector for growth.”

China will announce April new home price data tomorrow. Home prices rose in all but two cities in March as local governments announced milder-than-expected property measures.

China Oilfield Services Ltd. (2883) led gains for energy companies, rising 3 percent to 16.39 yuan. PetroChina Co., the nation’s biggest oil producer, added 0.9 percent to 8.59 yuan.

Economic Overhaul

Some Chinese investment projects, including for gas gields, airports and paper pulp will no longer need pre-approval from the nation’s economic planning agency, the government said. In all, 117 “approval items” can go ahead without authorization or be approved by local governments, according to a list published by the State Council on May 15.

The red-tape reduction is part of Premier Li Keqiang’s efforts to pare the government’s role in the economy. In comments published this week, Li signaled that policy makers are reluctant to use stimulus to counter a slowdown, saying China must rely on market mechanisms to aid growth.

The government has set up 7 work groups to draft plans for further reforms, Caixin Online reported, citing unidentified people close to the government decision makers. The reforms will also cover land rights, pricing for production materials, social income inequality and residency permits, the report said.

A gauge of utility stocks in the CSI 300 rose 2 percent today. Huaneng Power advanced for a fourth day, climbing 2.9 percent to 7.17 yuan. Huadian Power International Corp. surged 3.6 percent to 4.31 yuan.

“Utility stocks are gaining, with power companies benefiting from lower costs as coal prices weaken,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone.

Technology Rally

Technology stocks gained the second-most among CSI 300 groups this week, rising 8.8 percent. Sanan, China’s biggest listed maker of light-emitting diode epitaxial wafers, surged 7.4 percent to 19.39 yuan today, the highest level in two years. Goertek Inc. (002241), an Apple Inc. supplier, jumped 3.8 percent today for a 12 percent advance this week.

Technology shares “are the ones gaining because investors re-directed their attention into small-cap stocks with growth potential,” Zhou Lin, an analyst at Huatai Securities Co., said by phone from Nanjing yesterday.

China is drafting a plan to expand over-the-counter trading of shares that wil allow companies from more high-technology areas to sell stock, the China Securities Journal reported today, citing an unidentified person.

FAW CAR Co. paced declines for automakers amid concerns about foreign competition. The shares dropped 1.3 percent to 13.96 yuan. BYD Co. lost 2.2 percent to 36.40 yuan.

China said it will encourage foreign investment in vehicle manufacturing in its western region, reversing a policy to remove automaking from a list of industries qualifying for government incentives. Starting June 10, foreign auto investment will be given preferential treatment, the National Development and Reform Commission said in a statement today.

To contact the reporter on 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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