China's Stocks Decline on Banks' Stress Tests, Led by Property Developers
By Bloomberg News - Aug 4, 2010 6:45 PM PT
China’s stocks fell on speculation the government won’t relax its lending and real-estate curbs after regulators told banks to gauge the effect of property prices sliding by as much as 60 percent.
Industrial & Commercial Bank of China Ltd. and Poly Real Estate Group Co. led declines for banks and developers after a person with knowledge of the matter said lenders were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively.
“The stress test probably shows the government won’t loosen its curbs on the property market as it’s already prepared for the worst,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 0.2 percent to 2,633.66 at 9:36 a.m. local time. The CSI 300 Index fell 0.2 percent to 2,871.14.
The Shanghai index has rebounded 12 percent from this year’s low set on July 5 on speculation the government will ease property curbs and allow more lending to counter a slowdown in economic growth. Still, the measure is down 19 percent in 2010 on concern measures to control real-estate speculation and accelerating inflation will damp earnings.
ICBC, the nation’s biggest lender, dropped 0.5 percent to 4.27 yuan. Poly Real Estate, China’s second-largest developer market value, lost 2.3 percent to 12.80 yuan.
Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.
A deep slump in China’s property market may further slow the nation’s economy, which grew at a less-than-forecast 10.3 percent pace in the second quarter.
Falling Property Prices
Property prices in 70 Chinese cities dropped 0.1 percent in June from the previous month, the statistics bureau said July 12. Prices rose 11.4 percent from a year earlier, the second monthly slowdown after April’s record expansion.
China must contain bank lending, keep the yuan’s exchange rate flexible and provide “guidance” for the property market to help ensure “smoother functioning” of the economy, Xia Bin, an adviser to the central bank and director of the Finance Institute at the Development Research Center of the State Council, wrote in a commentary published in today’s China Daily newspaper.
--Zhang Shidong. Editors: Allen Wan, Matthew Brooker