China’s Stocks Slump Most in 7 Weeks on Europe Debt, Tightening

July 12 (Bloomberg) -- China’s stocks fell the most in seven weeks on speculation a European debt crisis may spread and higher-than-estimated new loans and money supply will make it difficult for the government to ease its tightening policies.

Jiangxi Copper Co. and China Shenhua Energy Co., the nation’s biggest producers of copper and coal, slumped at least 3 percent on speculation demand for commodities will falter. Poly Real Estate Group Co., the nation’s second-largest developer by market value, retreated the most in three months after Xinhua News Agency reported Shanghai will start a trial to cap prices of newly built low-income housing.

“The European debt problem will boost concerns about liquidity in global markets as well as China’s exports to the region,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “For the third quarter, I am cautious about stocks as there’s no indication of when economic growth will pick up again.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 48.11 points, or 1.7 percent, to 2,754.58 at the 3 p.m. close, the biggest decline since May 23. The CSI 300 Index fell 1.8 percent to 3,056.91.

The Shanghai gauge has fallen 1.9 percent this year after the central bank raised interest rates five times and reserve-requirement ratio 12 times since the start of 2010 to tame inflation that quickened to a three-year high last month. The index has pared a loss of as much as 6.7 percent on speculation fiscal policies such as spending on affordable housing will support the economy and after Premier Wen Jiabao said on June 24 efforts to stem inflation have worked.

‘More Tightening’

New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey of economists. M2, the broadest measure of money supply, rose by a more-than-forecast 15.9 percent, and foreign-exchange reserves climbed to $3.2 trillion. The People’s Bank of China released the data on its website today.

“This suggests more tightening on the horizon,” said Joe Lau, a Hong Kong-based economist at Societe Generale SA. “This may be more likely through further reserve ratio hikes.”

Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, lost 0.9 percent to 4.29 yuan. China Construction Bank Corp., the second largest, fell 1 percent to 4.77 yuan. Bank of China Ltd., the third biggest, dropped 1.3 percent to 3.09 yuan.

Shanghai will start a trial to cap prices of newly built low-income housing in planned urban areas in Pudong New District in the second half of this year, Xinhua reported yesterday, citing the city’s Mayor Han Zheng. China’s housing ministry said it has issued rules tightening management of real-estate agents.

Developers Drop

Poly Real Estate dropped 3.8 percent to 10.83 yuan, the most since April 20. China Vanke Co., the biggest listed developer, slid 2.9 percent to 8.50 yuan. China Merchants Property Development Co. lost 1.7 percent to 18.44 yuan.

Chinese inflation is being driven by property price increases, which will be key to controlling consumer prices, Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, wrote in a commentary in the Hong Kong Economic Times today.

Jiangxi Copper fell 3 percent to 34.88 yuan. Shenhua lost 3.7 percent to 29.76 yuan. PetroChina Co., the nation’s biggest oil company, slid 1.5 percent to 10.72 yuan.

The Standard & Poor’s 500 Index slumped 1.8 percent yesterday as concern grew Europe’s debt crisis will spread. Euro-area countries may have to double their bailout fund to 1.5 trillion euros to cover a crisis in Italy, the European Central Bank said, according to German newspaper Die Welt, citing unidentified “high-ranking” people at central banks.

Europe Debt

German Finance Minister Wolfgang Schaeuble said “there’s no discussion whatsoever” of doubling the European Union’s rescue facility after the Die Welt report. The Financial Times cited unidentified senior officials as saying European leaders are prepared to accept that Greece should default on some of its bonds. The EU is China’s biggest export market, accounting for about a fifth of the Asian nation’s overseas shipments.

Crude oil for August delivery fell 1.1 percent to $95.15 a barrel in New York yesterday, the lowest level since July 1. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum dropped 1.6 percent, the biggest drop since June 2.

China’s economy probably grew 9.3 percent in the second quarter, according to the median estimate in a Bloomberg survey. It expanded 9.7 percent in the first quarter. That figure and other June data including industrial production and retail sales are due tomorrow.

In Hong Kong, the Hang Seng Index fell 2.8 percent after Moody’s Investors Service said some Chinese companies are engaging in potentially risky business practices. West China Cement Ltd. tumbled by as much as 27 percent after Moody’s said the cement producer faced the biggest risk on governance or accounting standards of 61 Chinese companies it analyzed.

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

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net