Shanghai's key index tumbled this morning, dropping to a two-week low as most shares lost ground. Food-related shares sank after China imposed a price freeze on food.

 

The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, shed 2.70 percent, or 142.62 points, to 5,147.99 at 11:30am today.

 

Losers in the Shanghai market outnumbered winners 710 to 76 and 64 were unchanged.

 

The Shenzhen Composite Index, which covers the smaller mainland stock market, lost 2.82 percent, or 43.36 points, to 1,495.

 

Shanghai-based Bright Dairy & Food plunged 5.89 percent, or 0.81 yuan (11 US cents), to 12.95 yuan while Inner Mongolia Yili Industrial Group Co, a flagship enterprise in China's dairy industry, sank 6.35 percent, or 2.04 yuan, to finish the session at 30.07 yuan.

 

Major producers and sellers of instant noodles, cooking oils and dairy produce must seek permission from the nation's top planning agency directly to raise prices. Others providing staples such as grain, pork, beef, mutton and eggs, as well as liquefied petroleum gas, will have to seek approval from provincial governments to raise prices, the National Development and Reform Commission said yesterday.

 

Since May, China's consumer prices, the main gauge of inflation, have been soaring, largely due to increasing food costs.

 

Food prices climbed 18.2 percent in November, pushing overall inflation to 6.9 percent, its highest monthly rate in 11 years, despite a string of fiscal and monetary policies introduced to slow the pace of inflation.

 

China Petroleum & Chemical Corp, Asia's biggest oil refiner and a key heavyweight in the market, was among the falling industrial shares after minority shareholders of its two listed units rejected a plan to make its stock available for trade publicly.

 

China Petroleum, also known as Sinopec, slid 5.53 percent, or 1.27 yuan, to 21.71 yuan. Sinopec Shanghai Petrochemical Co, China's largest maker of ethylene, shed 4.97 percent, or 0.82 yuan, to 15.67 yuan. Sinopec Yizheng Chemical Fibre Co, China's largest chemical fiber maker, lost 4.96 percent, or 0.56 yuan, to 10.72 yuan.

 

Shares of the two Sinopec's units were suspended through yesterday after last trading on January 4.

 

It is the second time small investors of the two companies have rebuffed the proposal by Sinopec to convert its shares in the units into tradable stock that can be bought and sold on exchanges. The first veto was made in November 2006.

 

Sinopec offered holders of the units' Shanghai-traded stock 3.2 shares for every 10 owned, the two companies said last month. Sinopec undertook not to sell the newly available shares for 72 months after the proposal is implemented.

 

The banking sector suffered a wide sell-off this morning after China ordered banks to increase their reserves for the 11th time in 13 months to curb inflation.

 

Industrial & Commercial Bank of China Ltd, the nation's biggest listed lender, dropped 2.28 percent, or 0.28 yuan, to 7.73 yuan. China Construction Bank Corp, the second-largest, fell 2.39 percent, or 0.23 yuan, to 9.38 yuan.

 

Lenders must put 15 percent of their deposits into the central bank beginning January 25, the People's Bank of China said late yesterday on its website, up from 14.5 percent. The ratio is the highest in at least 20 years.

 

But consumer stocks including Gree Electric Appliances Inc gained on expectations they will weather the government's plan to cool economic growth.

 

Gree Electric Appliances, China's largest maker of home air-conditioners, advanced 1.95 percent, or 1.09 yuan, to 56.90 yuan. Suning Appliance Co, China's second-biggest home appliance retailer, rose 0.88 percent, or 0.60 yuan, to 69 yuan.

 

(Shanghai Daily January 17, 2008)