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China’s Stocks Drop Most in Two Weeks; Industrial Shares Decline

China’s stocks fell the most in two weeks after the official Xinhua News Agency said massive stimulus measures would be “detrimental” to sustainable growth, overshadowing the government’s plan to aid exporters.

Gansu Qilianshan Cement Group Co. and machinery maker Sany Heavy Industry Co. slid at least 3.1 percent, pacing declines for infrastructure-related stocks. Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co. led materials producers to the biggest slump among industry groups as copper prices fell.

“Reliance on exports and investments probably isn’t a sustainable way of growth,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “Investors are still worried about China’s long-term growth model.”

The Shanghai Composite Index lost 0.8 percent to 2,110.38 at the close, the biggest drop since Aug. 29. The CSI 300 Index dropped 0.9 percent to 2,298.46. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slipped 0.1 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.6 percent in New York yesterday.

The Shanghai Composite has fallen 4 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy.

China’s central bank issued 28-day reverse-repurchase contracts for the first time in a decade, extending the duration of its fund injections into the banking system and damping speculation lenders’ reserve-requirement ratios will be cut. It lowered reserve ratios by half a percentage point in May, the third cut in six months.

No Massive Stimulus

Gansu Qilianshan Cement slumped 7.3 percent to 10.95 yuan. Huaxin Cement Co., an affiliate of Holcim Ltd., lost 3.4 percent to 11.12 yuan. Sany Heavy, the biggest machinery maker, slid 3.1 percent to 9.87 yuan. XCMG Construction Machinery Co., China’s biggest crane maker, dropped 3.3 percent to 11 yuan.

Massive stimulus measures would be “detrimental” to China’s sustainable economic growth, Xinhua wrote in a commentary yesterday.

“Many have expected the government to announce an aggressive plan, similar to the 4-trillion-yuan ($632 billion) stimulus package issued in 2008, to keep the economy from stalling for a second time,” Xinhua writer Liu Jie wrote in the commentary. “However, a massive stimulus plan is not only unlikely, but would be detrimental to the country’s sustainable growth.”

A gauge of material stocks in the CSI 300 fell 2 percent, the most among 10 industry groups. Jiangxi Copper, the nation’s biggest producer of the metal, retreated 1 percent to 22.47 yuan. Tongling Nonferrous Metals, the second largest, slid 1.8 percent to 18.88 yuan.

Export Aid

Copper fell from a four-month high on concern that demand prospects are dimming in China, the world’s biggest consumer of the metal. Contracts for December delivery slid 0.1 percent to settle at $3.6925 a pound in New York yesterday.

The government said yesterday it will provide aid to exporters including increased loans, faster tax-rebate processing and fiscal support, according to a statement on a State Council meeting chaired by Premier Wen Jiabao.

China’s exports rose less than 3 percent for a second month in August while imports had the first non-holiday decline since 2009 as the nation’s slowdown and Europe’s turmoil curbed demand at home and abroad.

Loan Support

Banks have been asked by regulators to increase lending to railways, roads and other construction projects to support stable growth of the real economy, the China Securities Journal reported today, citing an unidentified banker.

Thirty-day volatility in the Shanghai Composite was at 16 today, compared with this year’s average of 17. About 7.9 billion shares changed hands in the gauge yesterday, 1.3 percent higher than the daily average this year.

China’s media reported on Vice President Xi Jinping’s activities for the first time since Sept. 1. The official Guangxi Daily reported today that Xi, who is forecast to become China’s next president and general secretary of the 82 million-strong party in a leadership change later this year, joined other top Chinese officials in sending condolences to the family of a party member who died on Sept. 6. The story was also posted on the Communist Party’s website.

China’s stocks are poised for a multi-year bull market as the nation’s benchmark index approaches the end of a “bust phase” that started in 2007, according to Elliott Wave International Inc. technical analysis.

Fourth Wave

The Shanghai Composite’s drop since reaching a record high of 6,092.06 on Oct. 16, 2007, has reached the fourth wave of a five-way structure or in a “universal price pattern that has preceded the start of major bull markets in the past,” Mark Galasiewski, an editor at Elliott Wave International, said in e-mailed comments today.

Galasiewski also cited stock valuations, excessive investor pessimism and the outlook for the property market as reasons for buying equities. The Shanghai index is valued at 9.7 times estimated earnings, compared with the 17.4 average since Bloomberg began compiling the weekly data in 2006.

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