Suning, BYD Shares Rally on Chinese Government Subsidies

Suning Appliance Co. (002024) and BYD Co. paced gains on speculation demand will increase after China announced new subsidies for the consumer electronics and automobile industries.

Suning, China’s biggest electronics retailer by market value, rallied 1.65 percent to 9.87 yuan at the close of trading in Shenzhen. BYD gained 4 percent to 25.12 yuan, snapping seven days of losses. The benchmark Shanghai Composite Index climbed 1.4 percent, the most in two weeks, and the CSI 300 Index added 1.5 percent.

China will allocate 26.5 billion yuan ($4.2 billion) in subsidies to promote the use of energy-saving household appliances and products, according to a statement posted on the government’s website yesterday, citing a State Council meeting at which Premier Wen Jiabao presided. The nation will allocate a further 6 billion yuan of subsidies for purchases of vehicles with engines of less than 1.6 liters, according to the statement.

“Given the downturn in industry demand, the new policies will help to underpin profitability at these companies,” Ji Min, a consumer analyst at China Merchants Securities Co. in Shenzhen, said in a report.

Appliances eligible for subsidies include air conditioners, flat-panel television sets, refrigerators, washing machines and water heaters that meet energy-efficiency standards, the government said in the release.

The new subsidies replace a government program that gave shoppers as much as 400 yuan toward the purchase of new home appliances. The old incentives, which expired Dec. 31, drove the sales of electronics retailers including Suning and Gome Electrical Appliances Holding Ltd. (493) for two years.

Light Bulbs, LEDs

Gome jumped 2.4 percent to HK$1.26 in Hong Kong trading today. Skyworth Digital Holdings Ltd. (751), a maker of televisions and other electronics, surged 11 percent to HK$3.41.

China will also earmark 2.2 billion yuan to promote the use of energy-saving light bulbs and LEDs and 1.6 billion yuan for the purchase of “highly efficient” electrical machinery, according to yesterday’s statement.

China’s growth rate slowed to 8.1 percent in the first quarter from 11.9 percent two years ago. Retail sales gained 14.1 percent in April from a year earlier, the least since February 2009. That compared with estimates of 15.1 percent and March’s 15.2 percent increase. Passenger-vehicle sales rose 1.9 percent in the first four months of the year, according to the China Association of Automobile Manufacturers.

The auto stimulus announced yesterday is about half the amount spent by the government in 2010 to boost buying of such fuel efficient cars, according to Macquarie Group Ltd. China spent $12 billion yuan on a program offering a 3,000 yuan subsidy on the sale of each fuel-efficient car with engines smaller than 1.6 litres, analysts Zhixuan Lin and Janet Lewis said in a report today. The subsidies ended in October last year.

Slowing Sales

“The government knows this year passenger vehicle sales will be slow and the economy is slowing,” said Alice Leung, deputy head of research at ICBC International Research Ltd.“They also do not want idle resources and overcapacity in the industry.”

SAIC Motor Corp. rose 2.25 percent in Shanghai trading.Geely Automobile Holdings Ltd. (175) advanced 2.3 percent to HK$2.62, Dongfeng Motor Group Co. was up 2.3 percent to HK$13.30, and Great Wall Motor Co. (2333) stock jumped 5.8 percent to HK$15.32 in Hong Kong.