Nov. 23 （Bloomberg） -- China’s stocks fell, with the benchmark index dropping to a six-week low, on concern the government will intensify steps to tame inflation.
Indexes tracking materials and energy producers slumped more than 2 percent after the People’s Daily newspaper said in a front page editorial the government must intervene in prices where necessary. Jiangxi Copper Co., China’s top producer of the metal, declined 3.2 percent. PetroChina Co. sank 2 percent. Poly Real Estate Group Co. retreated 1.8 percent after Credit Suisse Group AG said property companies will underperform on an expected decline in home prices and volumes.
“The government is serious about tackling inflation which can also affect social stability,” said Bin Hu, chief executive officer of BNY Mellon Western Fund Management Co. in Shanghai. “They may take more measures including raising interest rates and allowing the yuan to strengthen.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 46.77, or 1.6 percent, to 2,837.61 at 10:27 a.m., set for the lowest close since Oct. 11. The gauge has lost 10 percent since reaching an almost seven-month high on Nov. 8 as investors speculated the government will raise interest rates and impose price controls to slow inflation. The CSI 300 Index retreated 1.9 percent to 3,111.7.
The country should designate more goods as important commodities for which the government needs to create reserves, the People’s Daily said. The quantity of reserves for important commodities should also be increased, the editorial said. China should also increase the supply of grain and cooking oil released from state reserves, the editorial said.
Price Controls
Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food.
A gauge tracking 58 materials producers declined 2.4 percent on the CSI 300, snapping a three-day gain. Jiangxi Copper fell 3.2 percent to 34.96 yuan. Aluminum Corp. of China, the listed unit of China’s biggest maker of the lightweight metal, dropped 2.4 percent to 10.38 yuan.
Accelerating food inflation in China may be the “worst enemy” of metal prices because it will encourage the government to increase interest rates, slowing industrial production growth, Citigroup Inc. said in a report.
‘Supper-Cycle’
“When iron ore prices double, it hardly touches rural Chinese workers,” Jon H. Bergtheil and other analysts wrote in the report today. “When food prices rise 10-15 percent every year, it does. For them, the ‘supper-cycle’ is a lot closer to home than the ‘super-cycle’。”
Standard Chartered Plc economists anticipate the consumer price index will rise by an average of 5.5 percent next year, with a peak gain of 6.3 percent in June. The bank estimates this year’s increase at 3.2 percent. That compares with a 0.7 percent decline in 2009.
Inflows of money from the trade surplus, foreign direct investment, and investors betting on gains by the yuan threaten to propel consumer prices after unprecedented lending by banks flooded the economy with cash from late 2008. Consumer prices rose 4.4 percent in October from a year earlier.
Energy producers retreated 2.2 percent on the CSI 300. PetroChina Co., China’s biggest oil producer, slid 2 percent to 10.96 yuan, the biggest contributor to losses on the Shanghai Composite and set for its lowest close since Oct. 11. China Shenhua Energy Co., the largest coal producer, fell 2 percent to 24.44 yuan
China will be able to meet the nation’s target this year to reduce energy use per unit of gross domestic product by 20 percent from 2005 levels, the National Development and Reform Commission said in a report distributed ahead of a briefing in Beijing today.
Fund Flows
Policy makers four days ago boosted the amount of money that lenders must set aside for the fifth time this year. Officials are seeking to rein in money supply after the Federal Reserve expanded U.S. stimulus with a plan to buy $600 billion of Treasuries, spurring capital flows into Asia.
The PBOC will raise the benchmark one-year deposit and lending rates by year-end, from the current levels of 5.56 percent and 2.5 percent, according to a Bloomberg News survey of nine economists last week.
Policy makers have limited the yuan’s appreciation to less than 3 percent since scrapping in June an almost two-year crisis policy of keeping the yuan level with the dollar to protect the nation’s exporters.
Property Controls
Poly Real Estate declined 1.3 percent to 12.09 yuan, extending a 29 percent plunge this year. China Vanke Co., the biggest developer by value, sank 1 percent to 8.01 yuan, the lowest close since Sept. 29.
In addition to expected declines in property prices, government controls on trust financing for developers will further squeeze their balance sheets in the “next few months,” analysts led by Jinsong Du said in the report today.
The government suspended mortgages for third-home purchases and pledged to speed up trials of property taxes to curb gains in housing prices. Price gains in Chinese cities slowed to 0.2 percent in October from September. Government lending restrictions have helped drag the Shanghai Composite down 13 percent this year after surging 80 percent in 2009.
--Irene Shen. Editors: Richard Frost, Darren Boey
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