China Stocks Rise Most in 2 Weeks as Li Report Spurs Growth Bets
China’s benchmark stock index rose the most in almost two weeks as investors speculated the government will lift spending on railroads and environmental gear to maintain economic growth of at least 7 percent.
CSR Corp. and China Railway Construction Co. rallied more than 7 percent after China Business News reported state-run China Railway Corp. may increase investment for railway construction this year. Fujian Longking Co., which makes pollution-control equipment, climbed to a seven-week high after China Business News said the government will invest 100 billion yuan ($16 billion) annually over five years to curb dirty air.
The Shanghai Composite Index (SHCOMP) gained 2 percent to 2,043.88 at the close, with trading volumes jumping 16 percent from the 30-day average. Premier Li Keqiang said China’s “bottom line” for economic growth is 7 percent, Beijing News reported today, citing comments at a recent meeting with economists and businessmen. Li previously said growth shouldn’t fall below lower limits that he didn’t specify.
“Li’s comment about having a growth bottom line is reassuring to investors because this means they need not be especially worried about a severe economic downturn and the economy is still manageable,” said Qian Weihai, an analyst at Shanghai Securities Co.
The CSI 300 Index advanced 2.9 percent today. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong surged 3.8 percent, as weaker-than-estimated U.S. home sales eased concern about an early exit from economic stimulus efforts. The Bloomberg China-US Equity Index added less than 0.1 percent yesterday.
The Shanghai Composite has fallen 10 percent this year as data from industrial production to exports pointed to a slowdown in the economy and as money-market rates reached record highs last month. Speculation that growth would fall below the government’s annual target of 7.5 percent announced in March has intensified after Finance Minister Lou Jiwei said earlier this month that 6.5 percent expansion wouldn’t be a “big problem.”
Li was cited by Beijing News as saying the “lower limit” for China’s GDP expansion is 7.5 percent. The article didn’t elaborate on the difference between a “lower limit” and a “bottom line.”
“Li recognizes that growth is approaching the 7.5 percent floor at the moment, but he sees no room on monetary easing and he will use supply-side measures to bolster growth without worsening existing structural problems,” Ting Lu, China economist at Bank of America Corp., wrote in a note to clients.
China Railway may increase investment for railway construction beyond the 650 billion yuan ($106 billion) earlier planned for this year, China Business News reported, citing an unidentified person close to high government officials. New high-speed rail lines could help reduce overcapacity in industries such as steel and cement, the Shanghai Securities News reported, citing railway officials.
CSR, China’s biggest train maker, advanced 8.1 percent to 3.86 yuan, the biggest jump since Feb. 5. China Railway Construction jumped 7.2 percent to 4.76 yuan, the largest increase since Jan. 4. Baoshan Iron & Steel Co. rose 1.5 percent to 4.10 yuan. Anhui Conch Cement Co. increased 2.7 percent to 14.21 yuan. Angang Steel Co. added 3 percent to 2.75 yuan.
“Railway investment is the easiest way for the government to bolster growth every time the economy slows,” said Li Jun, a strategist at Central China Securities Co. in Shanghai.
The government will continue a prudent monetary policy and a proactive fiscal policy, Vice Premier Zhang Gaoli said during a visit to the southern province of Guizhou, according to a State Council statement posted yesterday. China must take actions to support “reasonable” infrastructure as well as small- and medium-sized companies, Zhang said.
Fujian Longking advanced 1.8 percent to 27.08 yuan. The China Securities Journal said a plan to prevent water pollution will be submitted to the State Council by early August.
Ping An Bank Co. led a rebound for financial companies, rallying 5.7 percent to 9.96 yuan. Chinese banks face “insignificant” pricing pressure on loans after the nation removed the lending rate floor, news portal Hexun.com cited research from Agricultural Bank of China as saying yesterday.
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