China’s Stocks Rise, Completing Biggest Weekly Gain in Month

China's stocks rose, sending the benchmark index to the steepest weekly gain in a month, after the Shanghai Securities News reported the city may reform state-owned enterprises and auto sales exceeded estimates last month.

Shanghai No. 1 Pharmacy Co. (600833) rallied 10 percent on speculation SOE reform would improve profitability. SAIC Motor Corp., China's largest carmaker, climbed to a four-month high. Xinjiang Goldwind Science & Technology Co., the biggest wind-turbine maker, also jumped by the daily limit to lead gains for industrial stocks on prospects for higher shipments.

The Shanghai Composite Index (SHCOMP) rose 1.7 percent to 2,228.15 at the close, capping a 2.5 percent gain this week. The Chinese government is under pressure to reform state firms, which the World Bank has said might be a long-term drag on economic growth. Stocks in China, the largest foreign owner of U.S. Treasuries, also joined a rally for global markets on optimism U.S. lawmakers will lift the debt limit and avoid a default.

"SOE reform is another major investment theme for the market now as it will improve their profitability by giving employees stock incentives and introducing outside investors," said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co., which oversees $120 million. "The temporary resolution to the U.S. debt ceiling issue has boosted the risk appetite for equities globally."

The CSI 300 Index gained 1.6 percent to 2,468.51. The Hang Seng China Enterprises Index (HSCEI) advanced 1.3 percent. The Shanghai Composite has climbed 14 percent since June 27 as companies based in the city rose on speculation they will benefit from deregulation in the Shanghai free-trade zone.

SOE Reform

Trading volumes on the Shanghai index were 6.8 percent higher than the 30-day average today, according to data compiled Bloomberg. It trades at 8.8 times projected earnings for the next 12 months, compared with the five-year average of 12.6 times, Bloomberg data showed.

Shanghai No. 1 Pharmacy surged by the daily limit to 9.31 yuan. Shanghai Maling Aquarius Co., a food manufacturer, also jumped 10 percent to 11.51 yuan. Shanghai Shenda Co. (600626), a maker of textile products, climbed 10 percent to 6.12 yuan.

The Shanghai government's reform plans will focus on decentralizing power, offering stock option incentives and improving performance evaluation, the Shanghai Securities News reported today, without saying where it got the information.

More than 25 percent of government-run enterprises are unprofitable and productivity growth has trailed non-state firms by about 66 percent the past three decades, the World Bank said in a February report. State businesses may become a long-term drag on economic growth, the Washington-based lender said.

Debt Talks

SAIC rose 3.9 percent to 14.31 yuan. The automaker said sales increased 16 percent last month. Chongqing Changan Automobile Co. (000625), the Chinese partner of Ford Motor Co. and Mazda Motor Corp., surged 10 percent to 11.79 yuan.

China's passenger-vehicle sales increased 21 percent to 1.59 million units in September, the China Association of Automobile Manufacturers said. That compared with the 1.5 million-unit median estimate of five analysts surveyed by Bloomberg.

The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 2 percent in New York yesterday.

Discussions between Republican lawmakers and President Barack Obama will continue as they try to seek a "path forward" on the debt ceiling, according to Republican House Majority Leader Eric Cantor. Stocks and Treasury bills jumped in the U.S. trading day after the White House endorsed raising the limit until Nov. 22 without policy conditions attached.

"The market doesn't like uncertainties," Yi Gang, deputy governor of China's central bank, said in Washington yesterday. "They watch this drama very closely."

Trade Data

Xinjiang Goldwind Science led a rally for industrial shares, surging 10 percent to 8.57 yuan.

"The market is speculating the company will have higher shipments in the second half," Demi Zhu, an analyst at Bloomberg New Energy Finance, said by phone yesterday.

Bank of Ningbo Co. paced gains for lenders, rising 2.6 percent to 9.14 yuan. The lender won approval from the China Securities Regulatory Commission to set up a fund management firm, according to a statement to the stock exchange.

The customs office is due to release September data on foreign trade tomorrow. Exports probably increased 5.5 percent from a year earlier, according to the median estimate of 43 economists in a Bloomberg survey, compared with 7.2 percent growth in August. The statistics bureau will release data on inflation on Oct. 14 and third-quarter economic growth Oct. 18.

China's economy may grow about 7 percent for the "foreseeable future," as policy makers rein in the housing "bubble" and local government debt, Yi said in Washington.

The world's second-largest economy has picked up in the third quarter and may expand about 7.5 percent or 7.6 percent this year, he said during a panel discussion yesterday in Washington. The economy grew 7.7 percent last year, the slowest since 1999, and compared with an average growth rate of 10.3 percent over the last decade.