China’s Stocks Gain as Economy Withstands Europe Debt Crisis

A securities trading firm in Shanghai
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 0.6 percent to 2,577.53 at 9:32 a.m., adding to a 0.9 percent gain for the week and narrowing the year’s loss to 21 percent. Photographer: Kevin Lee/Bloomberg

China’s stocks rose, capping a weekly gain, as higher-than-estimated loan growth and retail sales added to evidence the world’s third-largest economy is withstanding Europe’s debt crisis.

GD Midea Holding Co. and Dashang Group Co. led merchants higher as retail sales surged 18.7 percent. Industrial & Commercial Bank of China Ltd. paced an advance for lenders after loan growth beat economists estimates and Goldman Sachs Group Inc. said banks offer “value.” A drop for technology and health-care stocks, the best-performing groups this year, limited the stock market’s gains.

“The Europe crisis appears to be contained for now,” Li Jun, strategist at Central China Securities Holdings Co., said in Shanghai. “That’s good for the market though we may still go through a period of volatility. Recent wage increases are going to drive consumption.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 0.3 percent to 2,569.94 at the close, completing a 0.6 percent gain for the week and narrowing the year’s loss to 22 percent. The CSI 300 Index advanced 0.3 percent to 2,758.87. Stock exchanges in China will be closed June 14 to 16 for public holidays.

Consumer stocks extended the biggest gains this week in the CSI 300 Index, spurred by today’s retail sales data and the prospect that wage gains will boost consumption. Consumer staples have rallied 3.3 percent this week, followed by a 2.7 percent gain for discretionary stocks. Retail sales rose 18.7 percent last month, compared with an 18.5 percent gain in April. The estimate was also for 18.5 percent growth.

Retailers Rally

GD Midea added 0.7 percent to 12.57 yuan. Dashang Group, an operator of department stores, advanced 2.5 percent to 48.05 yuan. Qingdao Haier Co. climbed 0.6 percent to 20.18 yuan.

Official data released yesterday in Beijing showed China’s exports jumped the most in six years and property prices rose at a near-record pace, signs that Europe’s widening deficits haven’t slowed China’s economy. The region is China’s largest export destination, making up 20 percent of total overseas sales.

China is paying close attention to the European debt crisis and its impact on the country, Sheng Laiyun, spokesman for the National Bureau of Statistics, told a briefing in Beijing today. The drop in global commodity prices in the wake of the crisis will help ease inflation in China, he said.

Sheng also said the bureau would investigate the leak of the economic data. A government official unveiled the figures at an investor conference June 9, Reuters reported, citing three unidentified people who attended the presentation.

Consumer Prices

Banks extended 639.4 billion yuan of new local-currency loans last month, the central bank said on its website today. Forecasts also indicated 600 billion yuan of new loans.

ICBC gained 0.7 percent to 4.17 yuan. Shanghai Pudong Development Bank Co. added 0.8 percent to 13.82 yuan.

Goldman Sachs said banks offer “value” relative to the overall A-share market and investors should add ICBC, Industrial Bank Co. and China Construction Bank Corp. on “dips.”

The market’s gains were limited on concern accelerating inflation will force the government to raise borrowing costs and hurt profits. Consumer prices rose 3.1 percent from a year earlier, while producer prices gained 7.1 percent, today’s data showed. Economists anticipated a 3 percent gain in consumer prices, according to the median of 32 estimates.

“The gain in consumer prices was slightly more than consensus though still tolerable,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s quite a gulf in opinion toward whether we need further tightening given uncertainties surrounding Europe and the strength of the U.S. recovery.”

Chinese Banks

Accelerating price gains will pressure the government to raise the value of the yuan, which would hurt future exports, Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd. in Hong Kong, said June 9.

U.S. Treasury Secretary Timothy F. Geithner said in testimony to the Senate Finance Committee yesterday that China’s exchange-rate policy prevents a balanced global recovery and called for a stronger yuan that would help officials fend off inflation in the world’s third-largest economy.

China, once an abundant provider of low-cost workers, is heading for the so-called Lewis turning point, when surplus labor evaporates, pushing up wages, consumption and inflation, said Huang Yiping, former chief Asia economist at Citigroup Inc. The result may prompt manufacturers to switch to cheaper countries such as India and Vietnam.

Wage Increases

Hon Hai Group’s Foxconn Technology unit said it will double salaries at Shenzhen factories after a spate of worker suicides. Local governments have announced increases in minimum wages this year ranging from 5 percent in Hunan province to 27 percent in Ningxia, according to Morgan Stanley.

“We have a longer-term trend of disappearing surplus labor because of the demographic changes,” Peng Wensheng, head of China research at Barclays Capital in Hong Kong, said in a Bloomberg Television interview today.

U.S. stocks rallied yesterday, with the Standard & Poor’s 500 Index gaining the most in two weeks, as reports from China, Japan and Australia boosted optimism about the global economy.

A measure of six metals traded on the London Metal Exchange, including copper, aluminum and zinc, rose 0.9 percent yesterday, a third-straight gain.

Drugmakers Fall

Jiangxi Copper Co. gained 2.1 percent to 28.59 yuan. Aluminum Corp. of China, the nation’s largest producer by market value, advanced 1.4 percent to 10.32 yuan.

Harbin Pharmaceutical Group Co. led declines for health-care stocks, dropping 4.4 percent to 22.20 yuan. A gauge of drugmakers slid 1.8 percent on the CSI 300 Index, while technology companies dropped 1.4 percent today. The 9.3 percent gain for the health-care index in 2010 has pushed up its price- earnings ratio to 26.7 times, compared with 18.6 for the broader CSI 300 Index.

The following stocks also rose or fell in China trading. Stock symbols are in parentheses after company names:

Chongqing Brewery Co. (600132 CH), a beer maker, rose 5.8 percent to 39.16 yuan after Carlsberg A/S said it will pay 2.39 billion yuan to increase its stake in the company.

Shandong Loften Aluminium Foil Co. (002379 CH), a producer of household aluminum foil, gained 1.4 percent to 42.08 yuan after Citic Securities Co. analysts Xie Congjun and Tang Chuan recommended investors buy the stock.

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