China Stocks Drop to 17-Month Low on Inflation, Olympic Effect

By Zhang Shidong

Aug. 11 (Bloomberg) -- China's benchmark stock index fell to the lowest in 17 months, overtaking Vietnam as the world's worst performer this year, as producer prices rose and Goldman Sachs Group Inc. said the Olympic Games will slow the economy.

Citic Securities Co. and Aluminum Corp. of China Ltd. led declines as factory-gate inflation accelerated to a nine-year high, increasing concern that higher costs may feed into consumer prices. Property developer Beijing North Star Co. plunged by the daily limit on concern construction curbs to lower pollution in the capital will dent income.

``The concern about inflation has come back to the market and it might persist at a high level for a while,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages the equivalent of about $850 million. ``With such weak sentiment, the market could do down further.''

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 101.62, or 3.9 percent, to 2,489.84 as of 1:58 p.m. local time, set for the lowest since March 5, 2007.

The measure has lost 53 percent this year, the worst performer among the world's 88 major benchmark indexes, on concern rising fuel prices and central bank measures to curb inflation will hurt earnings.

China Coal Energy Co. led producers of the fuel lower after Asian benchmark prices fell for a fifth straight week.

Citic Securities, the brokerage unit of China's biggest investment company, retreated 5.6 percent to 20.19 yuan. The brokerage said Aug. 8 its first-half profit growth slowed to 13 percent as the slump on equities kept investors away.

Factory Gate

Aluminum Corp., or Chalco, the nation's biggest maker of the lightweight metal, fell 7.6 percent to 10.66 yuan. China United Telecommunications Corp., which controls the nation's second- largest cell phone operator, slumped 6.9 percent to 6.19 yuan.

Factory-gate prices rose 10 percent in July from a year earlier, the statistics bureau said today. That was more than the 9 percent median estimate of 15 economists surveyed by Bloomberg News.

Beijing North Star, the property arm of Beijing's city government, plunged to 5.39 yuan. Beijing Urban Construction Investment & Development Co. slumped 10 percent to 8.92 yuan.

Restrictions on construction, factories, cars and mining to cut pollution and traffic will be a ``short-term'' drag on economic output, Goldman Sachs said in a report dated Aug. 8. Most limits are imposed in Beijing and five nearby provinces and cities, which generate about 26 percent of China's economic output, Hong Kong-based analysts Yu Song and Hong Liang wrote in an Aug. 8 report.

China Coal

China Coal, the nation's second-largest coal producer by sales, lost 2.9 percent to 11.09 yuan. Yanzhou Coal Mining Co., the listed unit of China's fourth-biggest coal miner, fell 7.9 percent to 14.81 yuan. Shanxi Coking Co., the largest publicly traded coke producer in China, dropped 10 percent to 7.47 yuan.

Power-station coal prices at New South Wales port in Australia fell 2.6 percent to $156.16 a metric ton in the week ended Aug. 8, according to the globalCOAL NEWC Index. The index reached a record $194.79 for the week ended July 4.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 4 percent to 2,502.25. The Shenzhen Composite Index lost 5.7 percent to 704.81.

The following stocks rose or fell and the stock symbols are in brackets after companies' names.

China Eastern Airlines Corp. (600115 CH), the nation's third-largest carrier by fleet size, tumbled 0.69 yuan, or 10 percent, to 6.17. The company said an agreement to sell a stake to Singapore Airlines Ltd. had expired.

Datong Coal Industry Co. (601001 CH), China's second- largest coal company by capacity, tumbled 2.38 yuan, or the 10 percent daily cap, to 21.39 as it resumed trading today. The stock had been suspended since July 14. Datong Coal said it plans to sell shares to its parent in exchange for a coal mine and a coal washing factory valued at 2.5 billion yuan ($365 million).

Wuhan Iron & Steel Co. (600005 CH), China's third-biggest steelmaker by value, added 0.13 yuan, or 1.7 percent, to 7.85. The company said first-half profit rose 36 percent to 4.9 billion yuan as prices gained on rising demand for pipes and automobile sheets.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net