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China stocks fell to 2-1/2 month lows on Thursday, weighing on markets across Asia, on growing worries that the economy was losing steam again after a promising start to the year.
Hong Kong stocks also retreated, with renewed concerns about a possible US interest rate hike prompting investors to take profits after Wednesday’s gains.
China’s blue-chip CSI300 index fell 0.9 per cent to 3,032.97 points by the midday break, a level not seen since mid-March, while the Shanghai Composite Index lost 1.0 per cent to 2,787.72.
In Hong Kong, the Hang Seng index dropped 0.2 per cent, while the Hong Kong China Enterprises Index lost 0.6 per cent.
Data on Thursday showed China’s state-owned firms’ profits fell 8.4 per cent year-on-year in the first four months of this year from a year earlier, while their debts surged 18 per cent, highlighting the challenges Beijing faces as it tries to restructure the bloated state sector as the economy slows.
Industrial profit data is due out on Friday.
Moody’s ratings agency said that China’s authorities have the tools to avert a financial crisis, but erosion of credit quality is likely over the medium term.
“China’s growing debt overhang will impose a substantial deadweight cost on the economy that will need to be allocated between the state, banking system, and corporate and household sectors,” the credit rating agency said in a report on Thursday.
“The price will likely be the persistence of large unrecognised banking sector losses, misallocation of capital, delays to the reduction in excess capacity and economic rebalancing, and a prolonged period of sub-optimal growth.”
Adding to downward pressure on stocks was news that corrosion-resistant steel from China will face final US anti-dumping and anti-subsidy duties of up to 450 per cent under the US Commerce Department’s latest clampdown on a glut of steel imports.
It would impact some of China’s largest steelmakers including Baosteel, Hebei Iron & Steel Group and Angang Group. Baosteel shares fell 1 per cent.
Banking was the only sector in China that ended the morning in positive territory. IT and transport shares were among the biggest fallers.
In Hong Kong, most sectors fell, but energy shares were firm as Brent crude oil prices rose above $50 a barrel for the first time in nearly seven months.
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