Most China Stocks Fall as Bank Losses Overshadow Drugmakers Gain

Most Chinese stocks fell, sending the benchmark index to its first loss in three days, as declines for financial and consumer-discretionary companies overshadowed gains for health-care shares.

Industrial & Commercial Bank of China Ltd. (601398) and Bank of China Ltd. (3988) slid at least 1 percent and were the biggest drags on the benchmark index. Suning Commerce Group Co., China’s largest electronics retailer by market value, plunged 5.9 percent. Kangmei Pharmaceutical Co. led gains for drugmakers as China said it’s aiming for the value of the health-services industry to be more than 8 trillion yuan ($1.3 trillion) by 2020.

About five stocks fell every four that rose on the Shanghai Composite Index (SHCOMP), which slipped 0.2 percent to 2,233.41 at the close. China’s consumer prices quickened last month, while new yuan loans exceeded estimates and exports unexpectedly fell, reports this week showed. The government is scheduled to publish third-quarter gross domestic product data on Oct. 18.

“Investors will still need to wait for economic data for September to gauge the strength of the economy,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “It’s normal to see some profit taking at this level but thematic investments such as health care are still active.”

The CSI 300 Index fell 0.2 percent to 2,467.52. The Hang Seng China Enterprises Index gained 0.8 percent as Hong Kong’s markets resumed after a holiday. The Bloomberg China-US Equity Index fell less than 0.1 percent yesterday.

Banks Decline

ICBC, the nation’s biggest listed lender, slid 1 percent to 3.84 yuan. China Construction Bank Corp. (939), the second largest, dropped 1.6 percent to 4.25 yuan. Bank of China lost 1.4 percent to 2.79 yuan.

China’s money-supply expansion slowed to 14.2 percent last month and the broadest measure of credit fell to 1.4 trillion yuan ($229.4 billion), the central bank said after the market closed yesterday. September new yuan loans rose to 787 billion yuan. The Chinese economy probably expanded 7.8 percent last quarter from a year earlier, according to a Bloomberg survey, up from the second quarter’s 7.5 percent pace.

The People’s Bank of China will have to tighten monetary policy because of inflation risks after a November Communist Party meeting and this tightening may continue through 2014, according to Nomura Holdings Inc. The 3.1 percent increase in China’s consumer-price index last month compared with the 2.8 percent median estimate of 44 economists in a Bloomberg survey.

Suning Commerce led declines in shares of Chinese companies that have sought to open privately owned banks after a newspaper reported that the new lenders will be limited to their home provinces.

Rising Competition

Suning fell 5.9 percent to 12.89 yuan. Kingfa Sci. & Tech. Co. slipped 2.4 percent to 6.23 yuan and Guangzhou KingTeller Technology Co. dropped 2.5 percent to 6.91 yuan in Shanghai. The companies are applying for bank licenses as China’s government seeks to increase competition in financial services and reduce the state’s role in reviving the world’s second-largest economy.

“The reported rules we’re seeing are much tighter than people thought previously, mainly the quota on licenses,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone. “Regulators may allow capable private companies to enter banking, but they would want a controlled pace” of liberalization.

The Shanghai Composite has climbed 15 percent from its four-year low on June 27, boosted by speculation the city’s free-trade zone will attract foreign companies and allow for financial liberalization. The index trades at 8.8 times projected earnings for the next 12 months, compared with the five-year average of 12.6, data compiled by Bloomberg show. Trading volumes in the stocks measure were 0.2 percent below the 30-day average.

Free Trade

China’s use of “free-trade” areas to test relaxed regulation is making the phrase more ubiquitous in news stories than at any other time since 1993, as stocks linked to the zones lead gains in the Shanghai Composite.

The number of articles mentioning free trade rose to the highest level since the U.S. signed the North American Free Trade Agreement with Mexico and Canada 20 years ago. At the same time, use of the word “China” has plunged from a record high in 2011 as the world’s second-largest economy slowed and its domestic stock market trailed emerging-market peers, according to data compiled by Bloomberg.

Drugmakers Gain

China may allow foreign companies registered in the Shanghai zone to raise capital by selling shares on a designated trading platform, the Wall Street Journal reported, citing two unidentified people with direct knowledge of the matter.

A gauge of drugmakers in the CSI 300 rose 1.5 percent, the second most among the 10 industry groups. Kangmei Pharmaceutical advanced 4.5 percent to 19.29 yuan. Shanghai Fosun Pharmaceutical Group Co. jumped 10 percent to 16.91 yuan.

China will relax a threshold for entering the health service industry, increase land supply for the industry and offer subsidies to private medical institutions, according to a State Council statement posted on the central government’s website yesterday.

--Zhang Shidong. Editors: Allen Wan, Michael Patterson

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

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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