Home Inns Leads Biggest Slide Since 2012: China Overnight

Chinese stocks trading in New York posted the biggest weekly decline since May 2012 amid concern that a slowdown in economic growth will curb corporate earnings and add to a jump in bad debts.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. sank 7.1 percent to 96.43, the first decrease since the five-day period ending Jan. 31. Home Inns & Hotels Management Inc., which runs China’s biggest budget hotel chain, slid 19 percent, while China Lodging Group Ltd. dropped the most since its 2010 initial public offering. Youku Tudou Inc., the owner of China’s biggest video websites, had the worst weekly slump since December 2012.

Equities retreated after data showed China’s industrial output and retail-sales growth cooled more than economists estimated in January and February, while last month’s exports had the biggest drop since 2009. Shanghai Chaori Solar Energy Science & Technology Co., a maker of solar cells, became the country’s first company to default on onshore notes when it failed to make a full coupon payment on March 7.

“There are too many pieces that the Chinese government is trying to keep together, but we see that they are not magicians and they can’t sustain control on all the segments of the economy,” Charles Dumas, the chairman of Lombard Street Research Ltd., a London-based consulting firm, said in an interview at Bloomberg headquarters in New York March 13. “Growth is slowing and serious reforms should be implemented to reverse the trend.”

Bear Markets

Stocks also joined a rout in emerging-market equities, which sent Brazil and Russia into bear markets, amid concern the crisis in Ukraine will escalate. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., dropped 5.6 percent to $33.03 in the biggest weekly slump since June 2012.

Factory production rose 8.6 percent in the two-month period from a year earlier, the National Bureau of Statistics said March 13 in Beijing, compared with the 9.5 percent median projection of analysts surveyed by Bloomberg News. Retail sales gained at the slowest pace for the first two months since 2004.

Premier Li Keqiang said last week there’s some flexibility around the nation’s 7.5 percent growth goal this year and that the government’s key concerns are jobs and livelihoods. Bank of America Corp., UBS AG, JPMorgan Chase & Co. and Nomura Holdings Inc. have all lowered their forecasts for Chinese economic growth in 2014.

Total Lending

The slowdown is making it harder for Chinese borrowers to repay their debts. Nonperforming loans increased by 28.5 billion yuan ($4.6 billion) in the last quarter of 2013 to 592.1 billion yuan, according to the banking regulator. While that’s still just 1 percent of total lending, it’s the highest amount since September 2008.

Scrutiny of China’s onshore bond market has increased as Chaori Solar’s default has stoked speculation more companies may miss debt deadlines.

“The first onshore bond default is not necessarily going to be the last,” Win Thin, the global head of emerging-market currency strategy at Brown Brothers Harriman & Co. in New York, said by phone March 12. “We might hear more news like that.”

China Lodging dropped 21 percent to $23.44 last week, while Home Inns slid to $30.55, the lowest since August. Youku plunged 18 percent to $29.16.

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