China Stocks Fall for First Time in Three Days on Economy Slowdown Concern

China’s stocks fell after a measure of manufacturing weakened, the government said it will levy a new resources tax and Credit Suisse Group AG said funding may be tightened for developers.

China Shenhua Energy Co. sank the most in two weeks and China Petroleum & Chemical Corp. (600028) lost 1.9 percent after a preliminary manufacturing index released by HSBC Holdings Plc and Markit Economics dropped to 49.4. Poly Real Estate Group Co. plunged 4 percent, pacing losses by property companies, after Credit Suisse said the risk of default by developers is rising on possible credit tightening and weak sales.

“Companies’ earnings will slide in the third quarter as the tight monetary policy curbs economic growth and increases lending costs,” said Yang Delong, a fund manager at China Southern Fund Management Co., which oversees $21 billion.

The Shanghai Composite Index lost 1.7 percent to 2,469.36 as of the 11:30 a.m. local-time break. The measure has slumped 12 percent in 2011, extending last year’s 14 percent plunge, as the government increased measures to cool inflation that’s at the highest in almost three years. The CSI 300 Index (SHSZ300) dropped 2 percent to 2,715.71 today.

Stocks on the Shanghai gauge trade at 11.4 times estimated profit, after dropping to the lowest level on record this week, according to data compiled by Bloomberg.

The preliminary reading of 49.4 for the manufacturing index in September released today compares with the final reading of 49.9 for August and 49.3 for July. A reading below 50 indicates a contraction.
Slowing Growth

The pace of the nation’s economic growth will see a “noticeable” decline in 2011 to 2015 compared with the previous 10 years, Li Daokui, an adviser to the People’s Bank of China, said in an interview with Internet portal netease.com. (NTES) It would be unrealistic to expect growth of above 9 percent in the next three years although expansion may be above 8 percent, he said.

A gauge tracking energy producers in the CSI 300 Index slid 2.2 percent. China Shenhua retreated 2.5 percent to 25.92 yuan, set for the biggest decline since Sept. 5. China Petroleum & Chemical, or known as Sinopec, dropped 1.9 percent to 7.08 yuan. PetroChina Co., the nation’s largest oil producer, fell 0.9 percent to 9.68 yuan.

China will levy a tax on resources based on their value and volume, according to a statement on the government’s website, citing a decision from a State Council meeting presided over by Premier Wen Jiabao. The country currently imposes resource taxes on producers of oil and gas as well as coal mining companies based on volume.
Profits Cut

China will set a benchmark rate of 5 percent that will vary across commodities, Du Ying, vice chairman of the National Development and Reform Commission, the top economic planner, said July 2010. The tax increase will cut profits of oil explorers including PetroChina, Sinopec and coal miners including China Shenhua and China Coal Energy Co.

The Shanghai Stock Exchange Property Index sank 2.5 percent, set for the lowest close since July 2010. Poly Real Estate retreated 4 percent to 9.96 yuan. China Vanke Co., the nation’s largest developer, slid 3.4 percent to 7.60 yuan.

A Reuters report that the China Banking Regulatory Commission ordered trust companies to inform the regulator of business dealings with Greentown China Holdings Ltd. may be a sign that China is trying to restrict financing sources for developers, Credit Suisse analyst Jinsong Du wrote in a report today. Greentown’s shares are traded in Hong Kong.
Financing Concerns

“If the Greentown news was true, investors are worried that the regulator will further tighten developers’ financing through trust funds,” said Johnson Hu, a Hong Kong-based property analyst of CIMB-GK Securities Research. “Financing through trusts accounts for quite a big pie of developers’ total financing, especially for those non-listed small and mid-sized developers.”

Tiffany Cheung, a Hong Kong-based head of investor relations at Greentown, didn’t respond to three messages left on her office voicemail from Bloomberg News seeking comment.

China’s stocks may drop in the fourth quarter as economic and corporate earnings growth slow and liquidity remains tight, according to UBS AG.

The property market will start “de-stocking” and that may cause weaker-than-expected recovery in industries dependent on the economy, Chen Li, head of China equity strategy at UBS, wrote in a report dated yesterday. The brokerage recommends stocks of food, beverage, clothing, telecommunication equipment and banks, according to the report.
’Operation Twist’

The MSCI Asia Pacific Index sank 3.5 percent on concern the Federal Reserve’s plan to buy $400 billion of bonds with maturities of six to 30 years through June, replacing shorter dated debt, will curb profit margins for global banks. The plan, dubbed “Operation Twist” after a similar program in 1961, will probably fail to lower the 9.1 percent unemployment rate, according to 61 percent of economists surveyed by Bloomberg before the announcement.

Jiangxi Copper Co., China’s biggest producer of the metal, fell 4.3 percent to 29.38 yuan. Yunnan Copper Industry Co. (000878) lost 3.5 percent to 18.58 yuan.

The three-month copper contract on the London Metal Exchange fell as much as 3.1 percent to $8,039.75 per metric ton to the lowest price since Nov. 17. (Bloomberg)