BL: China's Stocks Decline on Property Tax Speculation, Europe's Debt Crisis
By Bloomberg News - May 25, 2010
China’s stocks fell for the first time in three days on speculation the government will step up measures to avert asset bubbles even as Europe’s debt crisis threatens to halt the global recovery. Poly Real Estate Group Co. paced declines by developers after the Economic Observer said Shanghai will start a property tax trial next month. PetroChina Co., the nation’s biggest oil company, lost 1.6 percent and Jiangxi Copper Co. dropped at least 0.7 percent as raw-material prices fell amid concerns over the health of European finances.
“The market is still worried about the introduction of additional harsh measures such as the property tax, which would likely lead to a 20 percent and 30 percent decline in housing prices,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “That would exacerbate the risk of a double-dip for the economy.”
The Shanghai Composite Index retreated 30.66, or 1.2 percent, to 2,642.76 at the 11:30 a.m. local-time break. The CSI 300 Index declined 1.3 percent to 2,837.63 today. China’s stocks joined a rout across Asia after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week.
Shanghai will introduce a property tax policy on a trial basis next month, the Economic Observer reported, citing an unidentified person.
The report didn’t identify the nature of the tax and said more detailed policies may be announced at a later date. The 21st Century Business Herald reported on May 14 the prospect of expanding a tax on commercial-use properties to residences.
Housing Prices
“The government is determined to bring down housing prices,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.
Poly Real Estate, the second-largest listed developer, lost 4 percent to 11.66 yuan. China Vanke Co., the biggest, dropped 2.9 percent to 7.48 yuan. Gemdale Corp., the fourth largest, retreated 4 percent to 6.81 yuan.
The Shanghai Composite has lost 19 percent this year on tightening measures that include reining in loans for purchases of multiple homes, increasing mortgage rates and raising down payment requirements. The central bank ordered lenders this month to set aside more deposits as reserves for a third time in 2010.
China’s domestic fund managers cut stock holdings in their portfolios by four percentage points in the past two weeks, according to a report by Macquarie Securities Ltd. analysts Shirley Zhao and Michael Kurtz.
Stocks made up 74 percent of China’s 350 open-ended A-share funds, with the rest in bonds, cash and money market instruments, the report said, citing data from Shanghai Wind Information Co.
Rate Outlook
China’s central bank will remain “particularly cautious” about raising interest rates because of debt incurred by local governments and the potential for bad loans at the nation’s banks, Liu Yuhui, an economist with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in the China Daily.
PetroChina fell 1.6 percent to 10.92 yuan. China Petroleum & Chemical Corp., the second-largest oil producer, dropped 2.2 percent to 8.87 yuan. Jiangxi Copper, China’s biggest producer of the metal, retreated 0.7 percent to 29.56 yuan.
Three-month delivery copper on the London Metal Exchange dropped for the first time in four days, losing 1.7 percent to $6,790 a metric ton today. Crude oil declined, falling below $70 a barrel in New York.
Commodities declined on concern Europe’s debt crisis may spread. Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses.
Chinese stocks are factoring in both accelerating inflation and declining growth, a “mispricing” that is poised to “correct soon,” Morgan Stanley said.
The brokerage upgraded steel and building materials shares in its China portfolio to “overweight” from “underweight,” a week after increasing the weighting of banks, analysts led by Jerry Lou wrote in a report.
--Zhang Shidong. Editors: Richard Frost, Allen Wan
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or
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