China: Stocks fall after government cuts economic growth target

[BEIJING] China's stocks fell, led by financial and industrial shares, after the government set the lowest economic growth target in more than 15 years and concern grew that new share offerings will divert funds from existing equities.

China Railway Construction and China Eastern Airlines dropped more than 2 per cent to pace declines for industrial companies. Bank of China and China Life Insurance both slid 1.8 per cent. PetroChina dropped for a fourth day. Drugmakers surged for a second day, with Jiangsu Hengrui Medicine jumping 2.7 per cent.

The Shanghai Composite Index slid 0.6 per cent to 3,259.27 at 9:45 am. Premier Li Keqiang set a 2015 expansion goal of about 7 per cent, down from last year's target of about 7.5 per cent, according to a work report he will deliver to the annual meeting of the legislature in Beijing. The gauge has risen 42 per cent in the past six months and trades at 12.3 times estimated profit for the next 12 months, compared with the five- year average of 10.3, according to data compiled by Bloomberg.

"The 7 per cent goal means the government will focus on the quality of growth, while addressing issues like pollution," said Yan Liu, a trader at Guosen Securities Co. in Shenzhen. "There were high expectations over new policies. Some selective sectors such as health care, environment and high-profile developers may remain in demand." The CSI 300 Index slid 0.7 per cent. Hong Kong's Hang Seng China Enterprises Index dropped for a third day, losing 0.2 per cent, while the Hang Seng Index slipped 0.5 per cent. Trading volumes in Shanghai were 10 per cent above the 30-day average for this time of day.

China will start an exchange link between Hong Kong and Shenzhen at an "appropriate time," and adopt a new registration system for initial public offerings, the government said. The 24 IPOs starting from March 10 may freeze 3 trillion yuan (US$478 billion), the Shanghai Securities News reported.

Fiscal policy will remain proactive and monetary policy prudent, while the yuan exchange rate will be kept at a reasonable and balanced level, the government said. The inflation target was set at about 3 per cent and stable growth in aggregate financing will be targeted. It plans to expand M2 money supply by about 12 per cent and targets trade growth of about 6 per cent this year.

"There were no major surprises," said Zhang Zhiwei, Hong Kong-based head of China equity strategy and an economist at Deutsche Bank AG. "The M2 growth target was lower and this suggests there's not a big stimulus coming in."

BLOOMBERG