China’s stocks fell the most in a week amid concern the country faces its first onshore corporate bond default this week. Property shares slid as the government pledged to boost supply and clamp down on speculation.
China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, dropped at least 1.9 percent. China United Network Communications Ltd. led declines for phone companies after Premier Li Keqiang said the government will impose a value-added tax on telecommunication services.
The Shanghai Composite Index slipped 0.9 percent to 2,053.08 at the close. Shanghai Chaori Solar Energy Science & Technology Co. said it may not be able to make an 89.8 million yuan ($14.6 million) interest payment in full by the March 7 deadline. China retained a target for 7.5 percent economic growth this year, Premier Li Keqiang told an annual meeting of the National People’s Congress in Beijing.
“Chaori is a concern,” Chen Li, China equity strategist at UBS AG, said in an interview in Shanghai. “It increases the possibility of some credit event. China’s GDP growth target is having a neutral effect on markets.”
The CSI 300 Index declined 0.9 percent to 2,163.98. The Hang Seng China Enterprises Index lost 0.9 percent. The Bloomberg China-US Equity Index added 2.1 percent yesterday. The Shanghai Composite has fallen 3 percent this year on concern an unprecedented debt surge is stressing the financial system and hurting economic growth.
Shanghai Chaori, a maker of cells to convert sunlight into power, plans to pay 4 million yuan in interest payment to bondholders instead of the full amount, the company said in a statement yesterday. The stock has been suspended since Feb. 19.
A default would highlight strain in China’s financial system after a trust product issued by China Credit Trust Co. was bailed out in January. China’s renewable energy industry faces a record $7.7 billion in bonds maturing this year, testing the resolve of Premier Li who needs to allow industry consolidation to slow a buildup of debt in the economy estimated by a state think tank to account for 215 percent of gross domestic product.
The impact of allowing Chaori Solar to default in China would be similar to the collapse of Bear Stearns Cos. in the U.S., Bank of America Corp. said in a report. While it took a year to reach the Lehman Brothers Holdings Inc. stage when the market panicked, it will take less time in China as its market is less transparent, the report said.
China set a growth target which Premier Li said would boost market confidence and protect jobs. Inflation and money-supply targets also matched those of 2013 and the budget deficit as a percentage of gross domestic product will be about the same as last year. Fixed-asset investment may increase 17.5 percent this year, the National Development and Reform Commission said in a report. That would be the slowest in at least a decade.
The government has pledged to move away from growth at all costs as it tries to clean up the nation’s air and water, and control a jump in debt that’s evoked comparisons to the run-up to Asia’s financial crisis.
Vanke, the nation’s biggest listed property developer, lost 2.3 percent to 6.76 yuan. Poly Real Estate, the second largest, fell 1.9 percent to 6.65 yuan. China Merchants Property Development Co. retreated 2.1 percent to 15.41 yuan.
China will curb demand for housing for speculation and investment, and regulate housing differently in different cities, Li said in a report delivered at the start of the meeting. The government will start new construction of over 7 million affordable housing units this year. The nation built 4.7 million affordable homes last year.
A gauge of telecom companies in the CSI 300 slid 1.9 percent, the most among the 10 industry groups. China United Network dropped 1.5 percent to 3.23 yuan. ZTE Corp. lost 2.8 percent to 13.33 yuan.
The VAT will replace an existing business tax as part of a national trial also applied to railway transportation and postal services, Li said. Analysts said the move may cut earnings at the country’s three major wireless carriers as regulators push them to cut prices, offer more choices and improve customer service for China’s 1.2 billion wireless user accounts.
The Shanghai index is valued at 7.8 times 12-month projected earnings, compared with the five-year average multiple of 12.2, according to data compiled by Bloomberg. Trading volumes in the measure were 2 percent above the 30-day average for this time of day, according to data compiled by Bloomberg.
Zijin Mining Group Co., China’s largest gold producer, fell 3.3 percent to 2.35 yuan. Shandong Gold Mining Co. lost 3 percent to 18.37 yuan. Gold futures fell from a 17-week high with the contract dropping 0.9 percent yesterday.
Wang Penghui became China’s top-ranked stock picker by doing what billionaire investor Bill Gross says can’t be done: predict where the world’s second-largest economy is heading.
The manager of the $1.6 billion Invesco Great Wall Domestic Demand Growth Fund has produced the best risk-adjusted returns among 48 Chinese rivals in the BLOOMBERG RISKLESS RETURN RANKING since August 2009. He sidestepped a 40 percent tumble in the Shanghai Composite by shifting into technology and consumer stocks from the banks and commodity producers that have been hurt most by the nation’s economic slowdown.
“China has encountered a bottleneck of the old growth model and we need to walk out,” Wang said in an interview from Shenzhen. “That’s why we selected industries like technology. They’re necessary for China to transform the structure of its economy.”