China Stocks Rise as Shanghai Trade Zone Boosts Banks

China’s stocks rose, capping a weekly gain for the benchmark index, as airlines, banks and shipping companies rallied on speculation Shanghai’s Free-Trade Zone will lure more business into the nation’s commercial hub.

Cosco Shipping Co. jumped 10 percent as the Baltic Dry Index surged to its highest level since January 2012 and media reported foreign investors may be allowed to take bigger stakes in shipping joint ventures in the planned zone. Shanghai International Port (Group) Co. soared 10 percent, extending a two-week rally that has seen its shares double. Shanghai Pudong Development Bank Co. led gains for financial companies, while Shanghai-based China Eastern Airlines Co. climbed 5.2 percent.

The Shanghai Composite Index rose 0.8 percent to 2,139.99 at the close, capping a gain of 2 percent for this week. The government will allow for liberalization of more than a dozen industries in the free-trade zone including banking and shipping, Agence France-Presse reported yesterday, citing a draft plan. China’s financial reforms may get a boost if the yuan is permitted to be fully convertible in the trade area, HSBC Holdings Plc said in a report.

“The reforms are getting more intense, leading to expectations there could be even more news on the free-trade zones during the November meeting” of Communist Party leaders, said Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing. “After the recent good data, investors are positive about upcoming economic figures.”

Economic Outlook

China’s customs office is scheduled to release August trade data on Sept. 8. The Shanghai index has climbed 9.7 percent since reaching this year’s low on June 27 as reports ranging from industrial production to manufacturing and money supply signaled the economy is stabilizing. An official manufacturing gauge jumped to a 16-month high in August.

The CSI 300 Index advanced 0.7 percent to 2,357.78, while the Hang Seng China Enterprises Index rose 0.1 percent. The Bloomberg China-US Equity Index added 0.7 percent in New York.

Overseas shipments are expected to have gained 5.5 percent from a year ago, compared with a 5.1 percent advance in July, according to the average estimate from 36 economists surveyed by Bloomberg. The statistics bureau will release inflation data on Sept. 9. Inflation probably slowed to 2.6 percent last month from 2.7 percent in July, while producer-price declines slowed, another survey showed.

Shanghai’s free-trade zone was approved by the State Council on July 3, with the Ministry of Commerce reiterating the approval on Aug. 22. It may open as early as the end of this month, according to the Shanghai Securities News, and is part of Premier Li Keqiang’s drive to shift the economy toward services and sustain long-term growth.

Shippers Rally

Cosco Shipping, a listed unit of China’s biggest shipping group, jumped 0.33 yuan to 3.62 yuan. Tianjin Marine Shipping Co. climbed 3.2 percent to 5.47 yuan. The Baltic Dry Index jumped 5 percent to its highest level since Jan. 9, 2012.

Limits on foreign investment proportions in joint-venture international shipping companies will be relaxed in the Shanghai trade zone, according to Agence France Presse, citing a draft plan. Non-Chinese flag ships owned or controlled by Chinese companies will be allowed to carry out domestic container operations, the draft report said.

The draft plan lists 19 business sectors to be liberalized including banking services, health insurance, financial leasing, game devices, value-added telecommunications, cultural relic auctions, legal services, medical services and ocean cargo shipping, AFP said.

Yuan Convertibility

Shanghai International Port surged to 6.02 yuan, adding to a 137 percent gain since the State Council approved the free-trade zone plan on Aug. 22. Shanghai International Airport Co. gained 4.9 percent to 15.92 yuan. Shanghai-based China Eastern Airlines, the nation’s second biggest domestic carrier, rose 5.2 percent to 2.83 yuan.

Pudong Development Bank jumped 4.8 percent to 9.57 yuan. Shanghai-based Bank of Communications Co. increased 3 percent to 4.10 yuan.

China will allow the convertibility of the yuan on the capital account on a trial basis, AFP reported. Companies registered in the free trade zone can open special accounts to freely exchange yuan while being required to close their onshore Chinese accounts, it said.

If the yuan is fully convertible and interest rates are liberalized in the proposed Shanghai free trade zone, it could “push China’s financial reforms forward,” HSBC said in the report.

Developers Fall

Poly Real Estate Group Co. led declines for developers after the Economic Information Daily reported the housing ministry has called a meeting with officials from seven cities including Nanjing to discuss rapid gains in property prices.

Poly Real Estate, the second-biggest developer, dropped 2.1 percent to 10.36 yuan. China Vanke Co., the largest, slipped 1.1 percent to 9.55 yuan. The Ministry of Housing and Urban-Rural Development urged local governments to take measures to meet annual control targets for housing prices, according to the Economic Information Daily.

The Shanghai index is valued at 8.6 times its projected 12-month earnings, the highest since June 18, according to data compiled by Bloomberg. Trading volumes were 29 percent higher than the 30-day average for this time of day, according to data compiled by Bloomberg.

(Corrects to show State Council approval was on July 3 in eighth paragraph, AFP report was yesterday in third paragraph.)
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