China Stocks Drop to 2-Year Low on Cash Crunch, Slowing Industrial Profit

Dec. 27 - Most Chinese stocks fell as concerns about slowing earnings growth overshadowed prospects the government will cut lenders' reserve-requirements ratios to ease an end-year cash crunch.

Anhui Conch Cement Co. (600585) and China First Heavy Industries Co. dropped at least 1.3 percent after a report showed profit growth for industrial companies in the the first 11 months of the year decelerated. Citic Securities Co. advanced the most in more than three weeks after a subsidiary of the biggest Chinese brokerage won regulatory approval to start investing offshore yuan in the mainland's bonds and stocks.

"Tight liquidity and slowing economic growth are key concerns for investors and that hasn't changed," said Wei Wei, an analyst at West China Securities Co. in Shanghai. "Stocks have room for further declines because we don't see a reversal of fundamentals."

The Shanghai Composite Index (SHCOMP) added 1.12 point, or 0.1 percent, to 2,191.23 at the 11:30 a.m. break, erasing a 1 percent loss. More than five stocks dropped for every two that rose. The CSI 300 Index (SHSZ300) gained 0.1 percent to 2,337.57. A measure of small and medium-size companies slid 0.9 percent in Shenzhen. Hong Kong's market is shut today, while the U.S. was closed yesterday for the Christmas holiday.

The Shanghai Composite has fallen 6.1 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30. The measure trades at 10.5 times estimated earnings, near a record low, according to data compiled by Bloomberg dating back to 2006. For the year, the measure is down 22 percent after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the region's debt crisis.