China's Stocks Set for Seventh Weekly Decline as Oil Climbs

By Chua Kong Ho and Zhang Shidong

July 4 (Bloomberg) -- China's stocks declined, with the benchmark index headed for a seventh weekly drop, as concern record oil prices will hurt earnings countered higher profit forecasts by banks.

China Petroleum & Chemical Corp. and PetroChina Co., the country's two biggest refiners, dropped on concern production costs will increase. China Shenhua Energy Co. led coal producers lower after a newspaper reported China may increase a tax on the fuel's production. Industrial & Commercial Bank of China Ltd. and Shanghai Pudong Development Bank Co. climbed after predicting increased earnings.

``The record oil price is killing China's utilities, refiners and airlines,'' said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management, which oversees about $12 billion. ``Bank earnings are a major surprise to the market. They're resisting the domestic tightening and lending curbs.''


The CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen, dropped 25.72, or 0.9 percent, to 2,734.89 at 1:28 p.m. local time. About nine stocks fell for every five that rose. The measure is down 2.9 percent this week.

China's CSI 300 Index has plunged 49 percent this year, the worst-performing among the world's 20 biggest equity markets. The measure more than doubled in both 2006 and 2007, reaching a record on Oct. 16 last year.

Higher Taxes?

China Petroleum, or Sinopec as the company is known, dropped 2.6 percent to 9.48 yuan. PetroChina Co., the nation's second- biggest refiner, sank 1.8 percent to 14.45 yuan.

Oil in New York was recently at $145.35 a barrel after climbing yesterday to a record $145.85. Crude has gained 51 percent this year.

Shenhua Energy, Asia's largest coal producer, slumped 8.9 percent to 31.70 yuan, the biggest drag on the CSI 300 Index. Hebei Jinniu Energy Resources Co. fell 9.6 percent to 37.70 yuan, Shanxi Xishan Coal & Electricity Power Co. tumbled 9.9 percent to 41.80 yuan. Six of the 10 biggest contributors to the index's decline today are coal producers.

China may increase the resource tax on coal production this weekend, the Shanghai-based National Business Daily reported, without saying where it got the information.

Industrial & Commercial Bank gained 1.1 percent to 4.70 yuan. The lender said it expects first-half profit to rise by more than 50 percent, as China's economic growth boosts demand for loans, according to a statement to the exchange.

Higher Profit

Pudong Bank added 2.6 percent to 20.95 yuan. Profit for the first six months probably rose by more than 140 percent from 2.55 billion yuan ($372 million) a year earlier, the Shanghai-based bank said in an exchange filing.

The Shanghai Composite Index, a measure of stocks on the larger of China's two exchanges, lost 0.7 percent to 2,683.88. The Shenzhen Composite Index slipped 0.3 percent.

Ping An Insurance (Group) Co., the nation's second-largest insurer, fell 1 percent to 40.16 yuan, a fourth consecutive drop, even after saying it doesn't need to make financial provisions for its investment in Fortis. Ping An has slumped 18 percent this week amid concern it's being investigated for tax irregularities.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net.