Money
Shares drop on renewed fears of rate hike
By Zhang Shidong (China Daily)
Updated: 2011-06-30 10:30
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SHANGHAI - Stocks on the Chinese mainland fell for the first time in seven days on speculation that some local governments may default on their bank loans and the central bank will continue raising interest rates.
China Minsheng Banking Corp led declines for lenders, sliding more than 4 percent, after the Hong Kong Economic Journal reported a financing vehicle of the Shanghai government may not be able to repay loans. Anhui Conch Cement Co retreated from a two-month high. Sinovel Wind Group Co retreated among wind power companies after Citic Securities Co cut its recommendation for the industry.
"The central bank will probably raise interest rates next month," said Zhang Qi, an analyst at Citic Securities in Shanghai, China's biggest brokerage. "As long as inflationary pressure is there, that'll hold back a rebound for stocks."
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, slid 30.72 points to 2728.48 at its close, halting a six-day, 5.3 percent gain and the biggest drop since June 16. The CSI 300 Index fell 1.4 percent to 3000.17.
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Minsheng Banking, the nation's first privately owned bank, slumped 4.2 percent to 5.72 yuan (88 cents). Industrial and Commercial Bank of China Ltd fell 0.9 percent to 4.46 yuan. China Merchants Bank Co slid 1.8 percent to 12.92 yuan. Shenzhen Development Bank Co lost 2.4 percent to 16.63 yuan.
The investment company in Shanghai for property and highway construction may not be able to repay current loans from this month and has asked for an extension, the Hong Kong Economic Journal reported on Wednesday, citing unidentified people.
It issued bonds and took bank loans between the end of 2008 and 2009 after China introduced a 4 trillion yuan stimulus package to help cushion the economy against the effects of the global financial crisis, according to the report.
Separately, Shenzhen Development Bank said loans to local government financing vehicles currently account for about 5.5 percent of its total advances and the lender will continue to reduce this exposure, President Richard Jackson told reporters on a conference call.
China's first audit of local government debt, ordered by Premier Wen Jiabao, found liabilities of 10.7 trillion yuan at the end of last year and repayment risks, including a reliance on land sales, the National Audit Office said this week. As much as 30 percent of bank loans are expected to turn sour and they are likely to be the biggest source of non-performing assets for the industry, Standard & Poor's said in April.
Anhui Conch fell 2.4 percent to 27.13 yuan. China First Heavy Industries Co, a maker of equipment used in the mining and energy industries, retreated 4 percent to 4.82 yuan after jumping 18 percent over the past four days.
The People's Bank of China sold one-year bills at a yield of 3.4982 percent on Tuesday, compared with 3.4019 percent at the last sale on June 21, according to a statement on its website. The central bank issued 2 billion yuan of the securities.
The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, gained two basis points to 3.78 percent on Wednesday in Shanghai, a second day of gains, according to data compiled by Bloomberg.
"Investors have been worried the central bank will raise interest rates in the near term, and the increase in bill yields worsened such expectations," said Guo Caomin, a bond analyst at Industrial Bank Co in Shanghai. The benchmark one-year lending rate may be lifted next month, he said.
The nation's inflation will be a "big story" over the next decade and is "most likely chronic," central bank adviser Li Daokui said in Beijing on Wednesday.
Bloomberg News
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