Latest News:  


Stocks sink on profit slowdown, audit plan

By Huang Tiantian and Yang Ziman and Gao Changxin  (China Daily)

08:08, July 30, 2013

Many individual investors were upset after China's benchmark stock index dropped below the psychologically important 2,000-point mark again on Monday. The Shanghai Composite Index closed at 1,976.31 points, down 1.72 percent from the previous session. DING TING / XINHUA

Nervous investors drove down the Chinese stock market on Monday, reacting to discouraging news about industrial companies' first-half profit growth and a State Council call for a nationwide audit of local government debt.

The Shanghai Composite Index fell 1.72 percent, or 34.54 points, to 1,976.31 points, the largest single-day fall since July 8. The loss took the benchmark index below the 2,000-point level.

The Shenzhen Component Index had an even worse day, sliding 2.23 percent to 7,668.54 points.

The Hang Seng China Enterprises Index fell 1.17 percent.

The National Bureau of Statistics announced over the weekend that industrial profits increased 11.1 percent in the first six months of the year, compared with growth of 12.3 percent a year earlier.

"The modest easing in industrial profit growth comes amid ongoing sluggishness in the manufacturing environment," said Zhu Haibin, the chief economist of JPMorgan Chase & Co. "And it will affect the manufacturing sector."

Reacting to the news, the shipbuilding industry as a group fell by 4.1 percent on Monday, the biggest loss among the boards. Industry leader CSSC Jiangnan Heavy Industry Co Ltd was down 9.71 percent in the afternoon session.

The market was also undermined by news that the central government ordered the National Audit Office to conduct a review of local government borrowings. Banks in particular took a hit on the development.

Bank of China Ltd, China Construction Bank Corp, Industrial and Commercial Bank of China Ltd and Agricultural Bank of China Ltd lost 1.5 percent, 1.86 percent, 0.51 percent and 1.61 percent, respectively.

"Railway and property shares will bear the brunt of Beijing's latest round of local government debt audits," said Yang Shaohua, an A-share strategist with Shenyin & Wanguo Securities Co Ltd.

"That's because most of the funds raised by local government financing platforms went to the two sectors. Industries in the upstream of the two sectors will also be affected, including cement and steel," said Yang.

"The audit is Beijing's effort to get a full picture of the country's debt problems as it tries to speed up structural reforms," Yang said.

According to the audit office, the last audit, released in 2011, showed local government debts of 10.7 trillion yuan ($1.75 trillion) as of the end of 2010.

The impact of the audit on the equity market will be short-term.

"Overall, the A-share market has yet to hit bottom. Investors are demanding a higher risk premium in the face of government reforms, which has helped render the most significant slowdown in China in decades," Zhu added.

The Growth Enterprise Market, which saw "an irrational rally" earlier this year, presents the greatest downside risk, Yang said.

Shares of large-cap companies on the main board have already priced in 70 percent of the risks, whereas shares of many small-cap companies have stayed buoyant.

"Shares on the (growth market) are expected to take a hit in the second half. The biggest risk in the second half lies with liquidity," Yang added.

We Recommend:

Migrant workers' high incomes not that rosy

Glamorous girls highlight Hainan auto show

Top 10 profitable companies in China

Born to lead: 2nd gen of Chinese tycoons

How foreign firms deepen China’s milk headache?

Where is the end of the slump of gold price?

Cross-sea bridge to open in E China

GSK execs allegedly received sexual services

In pictures: history of China's auto industry

Email|Print|Comments(Editor:WangXin、Chen Lidan)

Leave your comment0 comments

  1. Name


Selections for you

  1. 'HK Teenager Military Summer Camp' ended

  2. APF officers and men in actual-combat drill

  3. Global Tiger Day marked in Jakarta

  4. Women drifting lifeguards team set up

  5. Pretty showgirls backstage at Chinajoy

  6. Nations unite to help tigers

  7. Five generations of ancient Miao jewelry

  8. Famous Buddha heads fallen by time

  9. GSK probe reveals something rotten

  10. Complaints rise over baby formula imports

Most Popular


  1. China's economy will continue to prosper
  2. Western countries face dilemma on Syrian conflict
  3. Reform, not incentives, to drive expansion
  4. Lenovo reigns as king of the hill
  5. Small exporters need more help to pass tough times
  6. Debate on internationalizing education
  7. Bo Xilai indicted for corruption
  8. China rules out provisional economic stimulus plan
  9. Removal of deposit rate ceiling not imminent
  10. Feeble Japanese-Philippine 'axis' doomed

What’s happening in China

3 killed, 5 injured in S China knife attack

  1. Beijing police arrests airport blast suspect
  2. No epidemic outbreaks in quake-hit NW China
  3. Man stands trial over poisoned dumplings
  4. Explosion hits chemical plant in E China
  5. Floods, mudslides claim 22 in Gansu