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 The economic concerns offset the impact of plans announced at the
weekend to reform the bloated state-owned enterprise sector and
produce "decisive" results by 2020.
Underscoring the fragility of China's financial markets even after
some respite last week, currency traders suspected the central bank
intervened to prop up the yuan in onshore markets, which wobbled
following a report that net capital outflows in the first quarter of
the year were more than $100 billion.
"China's economy faces relatively big downward pressure, so investor
sentiment remains weak," said Gu Yongtao, strategist at Cinda
Securities.
China's stock markets have been on a roller-coaster ride in the past
few months, falling close to 40 percent since June and prompting
frantic efforts by authorities to restore confidence. Still, at
their peak this year, they were up more than 150 percent compared
with the lows of 2014.
A surprise devaluation of the yuan in August further roiled markets,
reinforcing concerns the economy was weaker than previously thought
and forcing China to burn through its foreign exchange reserves to
keep the currency stable.
A flurry of economic data in the past week has fed those concerns
and prompted Premier Li Keqiang to try to reassure markets that
China is on track to meet its main economic growth targets. The
government has said it expects GDP growth of around 7 percent this
year.
Price data pointed to increased deflation pressure and
lower-than-expected industrial output and investment figures this
weekend raised further doubts.
"Overall, the economy is very weak and the central bank may have to
continue cutting interest rates and banks' reserve requirement,"
said Zhou Hao, senior economist at Commerzbank AG in Singapore,
adding he thought growth would dip below 7 percent in the
July-September quarter.
China's benchmark CSI300 index <.CSI300> of the biggest listed
stocks in Shanghai and Shenzhen closed down 1.97 percent, while the
Shanghai Composite Index <.SSEC> dropped 2.67 percent.
China CSI300 stock index futures fell, some by as much as 7 percent,
underlining investor scepticism in the stock market's upside
potential.
REFORMS TO 'ZOMBIE' COMPANIES
Government plans on restructuring of state-owned enterprises (SOEs),
including allowing private investment, appeared to offer little for
investors to feed off.
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The mammoth task could involve some 25,000 enterprises owned and
managed by local governments and more than 100 managed centrally
under the State-owned Assets Supervision and Administration
Commission, or SASAC.
"The plan has long been expected," said Cinda's Gu. "So interest
toward the theme could be short-lived."
On Monday, Zhang Xiwu, deputy head of SASAC, told a news briefing
that China would centralize state-owned capital in key industries,
while restricting state investment in industries not in line with
national policies.
"We will make more efforts in reforming 'zombie enterprises',
long-time loss-making enterprises and in disposing of those
low-efficient and non-performing assets," Zhang said.
The yuan erased some early losses following suspected intervention
by the central bank via state-owned banks, traders said.
The currency was changing hands at 6.3692 per dollar in the spot
market onshore, marginally higher than the previous close.
The price spread between the offshore and onshore yuan markets
remained narrow, indicating overseas investors were heeding the
indirect warning delivered by China last week, when state-owned
banks - appearing to act on behest of the central bank - massively
bid up the yuan in offshore markets in London and Hong Kong.
The offshore market continues to price in a slight discount however,
suggesting expectations persist that the yuan will fall.
(Reporting by Samuel Shen and Pete Sweeney; Writing by Neil Fullick;
Editing by Rachel Armstrong)
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