China Stocks Decline for Second Day as Rate Cut Disappoints

By Fabio Alves

Dec. 23 (Bloomberg) -- Chinese stocks fell for a second day, led by financial companies, on concern an interest-rate cut wasn’t deep enough to keep the world’s fourth-largest economy from weakening.

China’s CSI 300 Index, the benchmark gauge of companies traded in Shanghai and Shenzhen, retreated 1.1 percent, extending yesterday’s 1.7 percent decline. The Bank of New York Mellon China ADR index, which tracks the country’s American depositary receipts, sank 4.2 percent to 278.93 in New York trading, its steepest loss since Dec. 1.

China lowered borrowing costs for the fifth time in three months yesterday after trade growth collapsed because of recessions in the U.S., Europe and Japan. The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent, the People’s Bank of China said on its Web site.

“This rate cut is an indication that economic activity in China is slowing much faster than anticipated,” said Roberto Lampl, who manages $4 billion in emerging-market stocks, including Chinese shares, at ING Investment Management in The Hague. “Chinese authorities are using monetary policy to reignite demand because of this weaker-than-expected economic environment.”

China’s economic growth may slow to 5 percent next year, less than half the 11.9 percent expansion in 2007, according to Royal Bank of Scotland Plc. The World Bank forecasts the economy will expand by 7.5 percent in 2009. The government is targeting an 8 percent expansion.

China cut interest rates by 1.08 percentage points last month, the biggest reduction in 11 years. Citigroup Inc. and HSBC Holdings Plc had anticipated at least a 54-basis-point reduction yesterday.

‘Rapid Deterioration’

“The surprise is how small the move is,” said Mark Williams, an economist with Capital Economics in London. “There’s been a sudden very rapid deterioration in all China’s economic data over the last 8 to 12 weeks.”

Exports fell 2.2 percent last month after growing 19.2 percent in October. Imports plunged 17.9 percent.

PetroChina, the country’s largest oil company, slumped 3.1 percent to $87.14. China Mobile Ltd., the world’s biggest phone company by market value, plunged 5.4 percent to $49.70. China Life Insurance Co., the largest insurer by market value, sank 4.2 percent to $45.70.

To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.