China Stocks Gain; Treasury Holding Worries

Chandrasekhar Atreya
04 Aug, 2010
New York City

Stocks in China region gained after dropping in mid-day trade. China opens its market for gold trade. PMI for non-manufacturing sector gains. Iron ore imports drop in as local production increases. BYD cuts its forecast for the year.

[R]5:00 PM Hong Kong, China – Stocks in China region gained after dropping in mid-day trade. China opens its market for gold trade. PMI for non-manufacturing sector gains. Iron ore imports drop in as local production increases. BYD cuts its forecast for the year.[/R]

Shanghai’s benchmark stock index recovered to close higher after dipping in the morning session led by steelmakers and property developers. Steelmakers led the losers after the China Iron and Steel Association said that output of more than 40% of domestic steel mills shrank in July.

Stocks in Hong Kong also rose echoing mainland sentiments.

The Hang Seng Index in Hong Kong added 0.43% or 92.22 to close at 21,549.88. The CSI 300 Index in China gained 0.37% or 10.46 to close at 2,876.43.

Automakers outperformed the market after reports that the China government will invest 100 billion yuan to promote new energy cars in the next decade. Gold miners also traded higher after People''s Bank of China said plans are afoot to open the gold market to foreign investors.

China, the fifth-largest holder of gold in the world, said yesterday it will further open its gold market and improve tax policies for investment in the precious metal.

The People''s Bank of China yesterday issued an industry guide to further develop its gold market. China will allow more commercial banks to import and export the metal, the central bank said Tuesday.

The Purchasing Manager’s Index for China’s non-manufacturing sector rose to 60.1 in July, up 2.7 points from June due to more demand in retail and catering services, the China Federation of Logistics and Purchasing said today.

The non-manufacturing PMI includes a set of indices to measure the non-manufacturing sector’s activity. The July rise comes after two consecutive monthly drops and was the fifth straight month for the reading to stay above 50.

U.S. Treasuries do not provide enough safety or liquidity when it comes to managing China’s $2.45 trillion foreign-exchange reserves, said Yu Yongding, a former central bank adviser.

“The U.S. government has strong incentives to reduce its real burden of debt through inflation and dollar devaluation,” he said. “Whichever way it is, the yuan-recorded market value of Treasuries will fail, causing huge capital losses to China’s central bank.”

Huawei Technologies Co, founded by former army official Ren Zhengfei, failed in its latest attempts to expand in the U.S. where the Shenzhen-based company has encountered opposition based on national security concerns. The company failed to get approval to purchase software supplier 2Wire Inc and Motorola Inc’s wireless equipment unit.

General Motors Co, the biggest overseas automaker in China, reported a 22% increase in July sales, aided by the popularity of Chevrolet cars, the company said. GM sold 176,645 units in July in China and Chevrolet sales surged 70% to 35,385 units.

China’s iron ore imports may continue to fall this quarter, extending the decline since the second quarter, due to rising domestic production and slowing demand from steel mills, a senior industry official said Tuesday.

Imports dropped 9% to 47.2 million tons in June from May, after surging 42% to a record 628 million tons last year. Domestic production totaled 101.55 million tons in June, up11.5% from the previous month.

“The situation has an enormous impact on supply and demand of the global market,” said Luo Bingsheng, Vice Chairman of the China Iron and Steel Association in Beijing Tuesday.

BYD Co cut its annual sales target for 2010 by a fourth as growth slows in the world’s second-largest economy. The company now expects to sell 600,000 vehicles instead of the earlier target of 800,000 units, Wang Jianjun, a spokesman for BYD sales unit, said in an interview today.

Shanghai Movers

Gansu Dunhuang, a grain and cotton producer surged 7.3% to 26 yuan and Shenzhen Agricultural Products also gained by 4.9% to 17.26 yuan.

Baoshan Iron fell 1.6% to 6.35 yuan and Anhui Conch Cement Co, the country’s biggest cement producer, dropped 1.5% to 19.41 yuan.

Poly Real Estate fell 1.6% to 13.09 yuan and Gemdale Corp dropped 0.8% to close at 7.09 yuan.