China's Stocks Drop to 6-Week Low on Lending Slowdown Concerns

China’s stocks fell to a six-week low on concern bank lending is slumping and business conditions are deteriorating, adding pressure on the government to ease monetary policy to avert a deeper economic slowdown.

China Minsheng Banking Corp. (600016) and Shanghai Pudong Development Bank (600000) Co. paced declines for lenders after three bank officials with knowledge of the matter said China’s biggest banks may fall short of loan targets for the first time in at least seven years. SAIC Motor Corp. (600104), China’s largest carmaker, dropped 3.3 percent on the prospect auto financing may be more difficult as banks curtail loans.

“The economy hasn’t hit bottom yet,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Though we’ve seen a series of policy relaxation moves, the market will still face challenges as investors are worried about the magnitude of the slowdown.”

The Shanghai Composite Index (SHCOMP) fell 17.42 points, or 0.7 percent to 2,333.55 at the close, the lowest since April 11. It lost 0.5 percent this week, a third week of declines. The CSI 300 Index (SHSZ300) fell 0.9 percent to 2,573.10. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 1.3 percent at the close in New York yesterday.

The Shanghai index has fallen 5.2 percent from this year’s high on March 2 on concern the slowdown in the world’s second-largest economy is deepening. Thirty-day volatility in the gauge was at 14.29 today, the lowest in a year. About 8 billion shares changed hands yesterday, 11 percent lower than the daily average this year.

Bank Loans

China’s biggest banks may fall short of loan targets for the first time in at least seven years as an economic slowdown crimps demand for credit, three bank officials with knowledge of the matter said. A decline in lending in April and May means it’s likely the banks’ total new loans for 2012 will be about 7 trillion yuan ($1.1 trillion), less than the government goal of 8 trillion yuan to 8.5 trillion yuan, said one of the officials.

Lending may be about 550 billion yuan this month, down from 681.8 billion yuan in April, the Securities Daily reported today, citing an unidentified person.

Minsheng Banking, the nation’s first privately owned bank, lost 1.1 percent to 6.33 yuan. Pudong Bank dropped 0.7 percent to 8.79 yuan. Industrial & Commercial Bank of China (601398) Ltd., the biggest listed lender, slipped 0.2 percent to 4.18 yuan.

SAIC led declines for automakers, falling 3.3 percent to 14.77 yuan. Jiangling Motors Corp., the Chinese commercial vehicle partner with Ford Motor Co., retreated 2.5 percent to 22.62 yuan. Great Wall Motor Co. (601633), China’s biggest pickup truck maker, slid 1.6 percent to 15.85 yuan.

Business Sentiment

China’s MNI business sentiment survey fell to 54.40 in May, the lowest level since December. It was down from April’s 56.04 and indicated overall conditions have worsened, according to a survey released by Market News International. The survey includes 182 manufacturing and non-manufacturing companies listed in China and Hong Kong.

Domestic economic growth faces downward pressure as consumer prices may grow “slightly” this year, according to a 2011 annual report from the People’s Bank of China posted on its website today. China may lower the benchmark lending rate in the short term, the Financial News, a publication of the central bank, reported on its website today.

The Shanghai Composite has climbed 6.1 percent this year on expectations the central bank will ease monetary policies to spur growth. The People’s Bank of China has cut the reserve-requirement ratio three times since November amid signs of a slowdown including a report showing industrial output growing the least in three years in April.

Stocks in the gauge are valued at 10.1 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

‘At Bottom’

“The stock market is at the bottom now and may rise with monetary policies being eased,” Wang Qi, a fund manager at Yinhua Fund Management Co., said in an e-mailed interview from Beijing yesterday. “We have turned optimistic about the A-share market this year because valuations are already at relatively low levels and the government has the ability to deliver steady economic growth and maintain economic stability.”

Railway-related stocks rose after the China Business News said the railway ministry may be permitted to sell more debt.

China Railway Erju Co. jumped by the 10 percent daily limit to 7.34 yuan, capping a 27 percent gain this week. Gem-Year Industrial Co. (601002), a manufacturer of carriage bolts, surged 8 percent to 13.43 yuan. China Railway Group Ltd. (601390) added 1.8 percent to 2.79 yuan.

The State Council may allow the railway ministry to bypass rules that cap the total value of its outstanding bonds at 40 percent of net assets, the China Business News reported today, citing an unidentified person close the ministry.

U.S.-Traded Stocks

Yinhua’s Wang, China’s best-performing fund manager this year, said a government pledge to compel state-owned companies to increase dividend yields will boost the nation’s stocks in the second half of the year. His fund has returned 36 percent this year, ranking first among 693 mutual funds in its peer group, data compiled by Bloomberg show.

The nation’s corporate dividends are the lowest among the world’s 10 largest markets, according to data compiled by Bloomberg. The dividend yield on the Shanghai Composite, or cash companies pay to shareholders as a percentage of stock prices, is 2.03 percent, Bloomberg data showed.

Chinese equities dropped in the U.S., led by solar companies, as data signaled manufacturing in Asia’s biggest economy may contract for a seventh month in May.

LDK Solar Co. (LDK), the world’s second-largest maker of wafers, tumbled to a record low and Suntech Power Holdings Co. (STP), the biggest solar-panel maker, sank to the weakest level since October.

China’s purchasing managers’ index shrank to a preliminary reading of 48.7 in May, compared with a final 49.3 for April, HSBC Holdings Plc and Markit Economics said yesterday. A number below 50 shows contraction.