China stocks rise to seven-year high as drugmakers advance

[HONG KONG] Chinese stocks rose, sending the benchmark index to a seven-year high, as drugmakers and technology companies advanced.

Jiangsu Hengrui Medicine gained more than 3 per cent after the nation's leading economic planner said China would remove limits on most drug prices. Wangsu Science & Technology Co. jumped 6.6 per cent. China Minsheng Banking Corp climbed 1.1 per cent after the lender reported a 5.5 per cent gain in first- quarter net income. Nine out of 10 companies making their trading debuts Wednesday jumped by the daily limit of 44 per cent as Fujian Cosunter Pharmaceutical Co. surged 32 per cent.

The Shanghai Composite Index rose 0.5 per cent to 4,312.81 at 9:41 a.m. Baoding Tianwei Group on Wednesday became the country's first state-owned company to default on an onshore bond, underscoring the government's pledge to open a cooling economy to market forces.

"I don't think the credit default risk is widespread especially after China's monetary easing," said Wenjie Lu, Shanghai-based strategist at UBS Group. "The case of Baoding doesn't represent an escalating credit default risk in corporate China."

The Hang Seng China Enterprises Index in Hong Kong slipped 0.3 per cent, after rallying 3 per cent yesterday. The Hang Seng Index fell 0.4 per cent, while the CSI 300 Index added 0.4 per cent. The Bloomberg China-US Equity Index increased 1.6 per cent.

Tianwei, a transformer maker that is a unit of the Chinese government-owned China South Industries Group Corp, said it will fail to pay 85.5 million yuan (US$13.8 million) of bond interest due Tuesday.

Investors seem almost downright happy about missed interest payments by Tianwei and Kaisa Group Holdings this week, and are responding by piling more money into the Asian nation's securities.

The defaults broke new ground for the economy. Rather than being supported by the government, these corporate failures are being viewed as a maturation for the world's second-largest economy just as it shows real signs of slowing - growth last year was the weakest since 1990.

"It's a positive development," Steve Schwarzman, Blackstone Group LP's chief executive officer, said in an interview in New York. "The government communicated about two years ago that they would start allowing defaults, so the market was prepared."

HSBC Holdings Plc and Markit Economics will release preliminary manufacturing data on Thursday. Their index, known as the flash PMI, probably slipped to 49.4 in April from the prior reading of 49.6, according to the median estimate of Bloomberg surveys. The data are scheduled for 9:45 am.

The Shanghai Composite has jumped 83 per cent in the past six months, the most among 93 benchmark indexes globally, fueled by record leverage and speculation the government will lower borrowing costs to boost the nation's economic growth.

At the 4,000 level, the Shanghai index is just at the start of the bull market as the Silk Road plan and reforms will support the Chinese economy, according to a commentary published on the People's Daily's website on Tuesday.

Blackstone's Schwarzman said the Chinese stock market shows signs of excess as the population plows savings into it while economic growth slows.

The balance of margin trading in Shanghai climbed to 1.15 trillion yuan, halting three days of losses after reaching an all-time high of 1.16 trillion yuan on April 16.

BLOOMBERG