China's Stocks Rise as Subway Plan Raises Stimulus Speculation - Businessweek

China’s stocks rose for the first time in three days as a government subway proposal stoked speculation policy makers will introduce more stimulus measures.

China Rail Construction Corp. (601186), builder of more than half the nation’s rail links, climbed 2.8 percent after the National Development and Reform Commission approved development plans for subways in 18 Chinese cities. Shanghai Chaori Solar Energy Science & Technology Co. lost 1.1 percent after the European Union threatened to impose tariffs on Chinese solar panels.

“The subway development plan boosts investors’ expectations of more spending by the government,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today. “Still, it’s widely expected the economic data to be released soon won’t be great and will drag on stocks.”

The Shanghai Composite Index (SHCOMP) gained 0.6 percent to 2,049.66 as of 9:38 a.m. local time after closing yesterday at its lowest level since February 2009. The CSI 300 Index added 0.8 percent to 2,216.28. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong advanced 0.3 percent. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1 percent to 86.29.

Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 7.9 percent this quarter. The gauge sank 2.7 percent in August, a fourth straight month of declines. That’s the longest streak since the five months through August 2004, according to data compiled by Bloomberg.

Factory Production

The Chinese government said yesterday industrial output will expand by about 10 percent this year, lowering its sights from an 11 percent goal given in December after weaker-than- anticipated domestic and overseas demand.

A slow recovery abroad and weak investment at home will keep weighing on Chinese factories, the Ministry of Industry and Information Technology said in a statement on its website yesterday. The Chinese ministry’s forecast indicates that the government recognizes that the slowdown has accelerated after growth dipped to a three-year low of 7.6 percent last quarter.

The revision comes as HSBC Holdings Plc and Markit Economics’ purchasing managers’ index for service industries fell to 52 from 53.1 in July, the third survey to show a slowdown this month. The People’s Bank of China has held off signaling further easing measures after two interest rate cuts this year.

Goldman Sachs cut its estimate for China’s 2012 GDP growth to 7.6 percent from 7.9 percent and reduced its 2013 forecast to 8 percent from 8.5 percent, economists Li Cui, Yu Song, MK Tang and Yin Zhang wrote in a note to clients, citing weaker economic data and softer external demand.

No Catalyst

“We’re seeing more data showing growth slowing in China but we’re also seeing very few signs that the central bank is interested in aggressive easing,” Timothy Ghriskey, the chief investment officer at Solaris Group LLC, which manages about $2 billion in assets, said in a phone interview from Bedford Hills, New York. “If the central bank stays on the sidelines, we don’t see a short-term catalyst that might send us in a different direction.”

China Railway Construction climbed 2.8 percent to 4.43 yuan, while CSR Corp, China’s biggest trainmaker by market value, jumped 4.4 percent to 4.04 yuan. The NDRC has approved development plans of subways in 18 Chinese cities including Suzhou, Hangzhou, Guangzhou, Tianjin and Shenzhen, the agency said on its website yesterday.

Solar companies fell after the EU opened a probe into whether Chinese manufacturers of solar panels sell them in the 27-nation bloc below cost, a practice known as dumping. The inquiry covers crystalline silicon photovoltaic modules or panels and cells and wafers used in them.

Lower Valuation

Shanghai Chaori Solar Energy declined 1.1 percent to 5.55 yuan. Zhejiang Sunflower Light Energy Science & Technology Co. retreated 0.3 percent to 6.44 yuan.

The Shanghai Composite trades at 9.3 times estimated profit, near the lowest levels since January, according to weekly data compiled by Bloomberg. The measure’s 30-day volatility reading was at 12, compared with this year’s average of 17. About 5.7 billion shares changed hands in the gauge yesterday, about 26 percent lower than the daily average this year.

The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., declined for a second day, losing 0.9 percent to $32.17 yesterday.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net