China Day Ahead: Loan, Deposit Rates Raised; Rare Earth Embargo

China unexpectedly raised its benchmark lending and deposit rates for the first time since 2007 ahead of data that may show inflation accelerated to the fastest pace in almost two years. Stocks and commodities fell.

The one-year lending rate will increase to 5.56 percent from 5.31 percent, effective today, the People’s Bank of China said on its website. The deposit rate will increase to 2.5 percent from 2.25 percent.

Crude oil, stocks in Europe and U.S. index futures dropped on concern the engine of the global recovery will slow as China’s policy makers seek to curb lending and prevent a property bubble. Higher interest rates may encourage inflows of speculative capital from abroad, complicating management of the world’s fastest-growing major economy.

“The interest rate hike is beyond my expectation,” said Wang Tao, UBS AG’s Beijing-based economist. “It shows the government is increasingly worried about inflation. This is the beginning of a series of interest-rate hikes next year.”

Rare Earth Embargo

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, the New York Times reported, citing three industry officials.

“The embargo is expanding” beyond Japan, one of the three rare earth industry officials said, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities, the newspaper reported.

They said Chinese customs officials imposed the broader shipment restrictions Monday morning, hours after a top Chinese official had summoned international news media Sunday night to denounce U.S. trade actions, the Time said.

Li Drops U.K. Train Bid

Hong Kong billionaire Li Ka-Shing’s Cheung Kong Infrastructure Holdings Ltd. dropped out as a potential bidder for Britain’s high-speed rail link to the Channel Tunnel, said two people with knowledge of the matter.

Cheung Kong Infrastructure, which has studied the asset and expressed initial interest, decided it probably won’t make a formal bid, said the people, who declined to be identified because the discussions are private. Final offers are due by the end of the month, one of the people said.

Hutchison Drops Ericsson in U.K.

Hutchison Whampoa Ltd.’s 3 U.K. mobile-phone unit will let a $2.2 billion seven-year managed-services contract with Ericsson AB expire when it ends in 2012.

The 3 unit, which completed a 400 million-pound network upgrade last week, “gave notice of its intention to terminate” the contract with Stockholm-based Ericsson, according to a judgment on the deal’s exit provisions from the High Court of Justice. The ruling is dated Oct. 18 and posted on the court’s website.

Gazprom Redirects to China

OAO Gazprom is redirecting liquefied natural gas contracted for the U.S. from its Sakhalin-2 project on the Pacific coast to Asia after rising production from shale rocks and an economic slowdown discouraged fuel imports.

The Russian gas exporter’s LNG unit sold volumes contracted for the U.S. to China and India, Elena Burmistrova, Gazprom Export’s managing director for oil, petroleum and petrochemicals, said in an interview with the Gazprom Export corporate newsletter e-mailed.

Japan May Stockpile Rare Earths

Prime Minister Naoto Kan said Japan should consider stockpiling rare earths, an indication that the country is trying to reduce its reliance on China for metals companies use in cars and electronics.

“Stockpiling is one option we need to consider,” Kan told reporters in Tokyo. While Japan is trying to secure supplies from countries other than China, establishing those agreements may take “some time,” he said.


Rail-related stocks: China has started development of a “super-speed” rail technology that can propel trains at an average speed of more than 500 kilometers per hour, Xinhua News Agency reported, citing He Huawu, an official at the Ministry of Railways.

China Railway Group Ltd. (601390 CH), the nation’s largest construction company by total assets, slid 1.7 percent to 5.16 yuan. China Railway Erju Co. (600528 CH) added 0.4 percent to 10.42 yuan.

Beiqi Foton Motor Co. (600166 CH): The company said nine-month net income may have risen more than 125 percent from 698 million yuan ($105 million) in the same period last year. The stock added 4.5 percent to 24.04 yuan.

China Nickel Resources Holdings Co. (2889 HK): The special-steelmaker said it’s offering bondholders HK$20,000 in cash and HK$100,000 in two-year, 10 percent convertible bonds in exchange for each HK$100,000 of existing convertible bonds. Holders of existing bonds will vote on changing the terms next month. The stock was unchanged at HK$1.49.

Coal producers: Benchmark coal prices at China’s Qinhuangdao port rose 1 percent to between 730 yuan and 745 yuan a metric ton as of yesterday compared with a week earlier, according to data from the China Coal Transport and Distribution Association.

China Shenhua Energy Co. (601088 CH), a unit of the nation’s largest coal producer, rose 3.7 percent to 29.14 yuan. Yanzhou Coal Mining Co. (600188 CH) jumped 7.8 percent to 28.52 yuan.

Huaneng Power International Inc. (600011 CH): The company, a unit of China’s biggest electricity producer, posted a 48 percent decline in third-quarter profit as fuel costs rose. The stock slid 0.4 percent to 6.79 yuan.

Multifield International Holdings Ltd. (898 HK): The developer said it will buy a multistory parking garage for trucks in Hong Kong’s Aberdeen district for HK$112.5 million. The stock gained 1.8 percent to 28 Hong Kong cents.

Northeast Securities Co. (000686 CH): The brokerage’s third-quarter net income rose 40.3 percent from a year earlier to 219.2 million yuan. The shares gained 1.4 percent to 28.75 yuan.

Shanghai Electric Power Co. (600021 CH): Shareholder China Power International Development Ltd. (2380 HK) sold 25.7 million shares, a 1.2 percent stake, in Shanghai Electric between June 8 and Oct. 18. The shares lost 0.5 percent to 4.45 yuan. China Power gained 1.1 percent to HK$1.86.

Shenzhen Neptunus Interlong Bio-Technique Co. (8329 HK): The drugmaker said it will place 189.3 million new H shares at 89 Hong Kong cents each, raising HK$168.5 million to repay debt and fund research and development and its vaccine venture. The stock will resume trading today.

Tsingtao Brewery Co. (600600 CH): The company’s third-quarter net income rose 12.9 percent from a year earlier to 694.8 million yuan. The shares gained 0.8 percent to 36.55 yuan.

Winsway Coking Coal Holdings Ltd. (1733 HK): The coal processor and transporter said it will buy 1.2 million metric tons of semi-soft coking coal from SouthGobi Resources Ltd. (1878 HK). The stock was unchanged at HK$3.54. SouthGobi gained 1.4 percent to HK$76.90.

Yunnan Tin Co. (000960 CH): The company’s third-quarter net income fell 28.2 percent from a year earlier to 92.8 million yuan. The stock gained 5.6 percent to 36.75 yuan.


9am       -Taiwan Central Bank Gov. Perng Fai-nan reports to
           the parliament’s finance committee
9:50am    -Boer Power (1685 HK) trading debut in Hong Kong
11am      -Hang Lung Chairman Ronnie Chan at shareholders’
           meeting in Hong Kong
2:20pm    -Nanya Technology (2408 TT) reports 3Q earnings
2:20pm    -Inotera (3474 TT) reports 3Q earnings in Taiwan
4pm       -Taiwan’s Sept. export orders
4:15pm    -China Mobile Ltd. (941 HK) earnings in Hong Kong

-China Overseas Land & Investment Ltd. (688 HK) earnings, either
during lunch break or after market in Hong Kong.


8:10    William Hess, China Analytics, Managing Director
9:40    James Sullivan, JP Morgan Asia Telecom,
        Telecom/Internet/New Media Strategist
10:40   Francis Lun, Fulbright Securities, General Manager
12:10   Sam Hill, RBC Capital Mkts, UK Fixed Income Strategist
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