China¡¯s Stocks Fall Most in Two Weeks, Led by Developers on Tax

April 8 (Bloomberg) -- China’s stocks fell the most in two weeks on concern the global recovery is faltering and the government will take more measures to rein in property prices in a market hedge fund manager James Chanos says is in a bubble.

Poly Real Estate Group Co. paced a decline among developers after Shanghai Securities News said the nation’s wealthiest city may impose a property tax. Jiangxi Copper Co., China’s biggest producer of the metal, and China Shenhua Energy Co., the largest coal producer, lost at least 2.2 percent. Air China Ltd. led Chinese airlines higher on expectations the government will allow the local currency to appreciate, reducing the value of foreign-currency denominated debt.

“We are still in an uncertain economic environment and gains in stocks are a bit ahead of fundamentals,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “The introduction of new taxation will curb speculative demand for properties and bring down prices.”

The Shanghai Composite Index lost 29.51, or 0.9 percent, to 3,118.71 at the close, its biggest drop since March 25. The CSI 300 Index fell 1.2 percent to 3,346.74. Stocks in the Asia- Pacific region dropped today on concern a decline in U.S. consumer credit will slow the economic recovery.

The Shanghai gauge is down 4.8 percent this year, the most among the world’s 10 biggest stock markets, on concern slower credit growth will slow the expansion at the world’s third- largest economy.

Bill Sales

The People’s Bank of China’s first sale of three-year bills since June 2008 fetched a yield of 2.75 percent, increasing its ability to curb money supply by offering longer-maturity debt with higher rates.

The yield on the 15 billion yuan ($2.2 billion) of the securities sold today was 82 basis points more than the 1.93 percent for one-year bills auctioned April 6, and in line with the median estimate in a Bloomberg survey of nine finance firms.

China’s property market is a bubble that may burst by as early as this year, Chanos said. The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, Chanos said. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Poly, Vanke

Poly Real Estate, China’s second-largest developer by market value, slid 3.1 percent to 19.53 yuan. China Vanke Co., the biggest, retreated 1.3 percent to 9.34 yuan. Gemdale Corp., the fourth largest, fell 2.2 percent to 13.47 yuan.

Shanghai’s government has already completed a basic plan for the tax, which would affect ownership of investment properties, the newspaper reported, without saying when the charge may be levied. The tax is likely to be applied to existing homes as well as new properties, the report said. The Shanghai Housing Support and Building Administration Bureau’s press officer didn’t answer calls to its office.

Jiangxi Copper dropped 3 percent to 36.53 yuan. Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal and also called Chalco, retreated 2.2 percent to 13.05 yuan. Shenhua dropped 2.2 percent to 28.89 yuan. China Coal Energy Co., the nation’s second-largest coal producer, lost 1.8 percent to 11.76 yuan.

Trading Accounts

A measure of six industrial metals traded in London dropped 0.6 percent yesterday, the first decline in eight days. Crude oil for May delivery fell 1.1 percent to $85.88 a barrel in New York.

The number of stock trading accounts opened in China for the week ended April 2 declined 7.2 percent as compared with a week earlier, China Securities Depository and Clearing Corp. said on its Web site.

The Shanghai Composite is valued at 18.2 times estimated earnings, the highest in Asia excluding Japan.

Chinese stocks will be “buoyed” by good economic and earnings data over the next few months even as it faces several major risks, Credit Suisse Group AG said.

An emerging bubble in the property market, the size of Urban Development and Investment Corporation debt, and inflation are factors that may weigh on gains, Credit Suisse analysts Vincent Chan and Peggy Chan wrote in a report.

Airlines

    Air China, the nation’s largest international carrier, rose 5.9 percent to 13.15 yuan, the highest since May 2008. China Southern Airlines Co. climbed 5.5 percent to 8.19 yuan while China Eastern Airlines Corp. added 3.7 percent to 8.80 yuan.

U.S. Treasury Secretary Timothy F. Geithner will meet Chinese Vice Premier Wang Qishan in Beijing today on a previously unscheduled trip to China. The nation will eventually allow yuan to appreciate, which will help to combat inflation, said investor Jim Rogers.

“China knows that they cannot have a major world economy with a blocked currency,” Rogers, 67, chairman of Singapore- based Rogers Holdings and author of “A Bull in China,” said in a Bloomberg Television interview.

The yuan has been held at around 6.83 to the dollar since July 2008, after appreciating 21 percent in the previous three years. Airlines benefit from a strong yuan when converting foreign-currency debts from purchasing planes into the local currency.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

China Fiber Glass Co. (600176 CH) jumped by the 10 percent daily limit to 22.41 yuan after a one-month suspension. China Fiber plans to buy out subsidiary Jushi Group Co. for 2.94 billion yuan from shareholders, said the company in a statement.

China Life Insurance Co. (601628 CH), the nation’s biggest insurer, fell 2.3 percent to 28.32 yuan. The stock was downgraded to “neutral” at Shenyin & Wanguo Securities Co., which cited limited room for gains in the stock.

Eguard Resources Development Co. (000826 CH), an operator of solid waste and sewage treatment, gained 5.8 percent to 20.76 yuan. China will invest 15 billion yuan in urban wastewater treatment in the first half of the year, the official Xinhua News Agency reported, citing the National Development and Reform Commission.

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