China stocks decline as regulatory scrutiny worries investors

Chinese stocks fell amid concern about a regulatory crackdown that has increased scrutiny on cross-border deals.

The CSI 300 Index retreated 0.5% as of 1:04 local time, trimming its advance for the week to 1.5%.

The Shanghai Composite Index lost 0.7% as some large-cap companies gave up gains spurred by MSCI’s decision to include China’s domestic shares in its global benchmarks.

Alpha Group tumbled 3.8%, after a 9.5% two-day jump, while BBMG headed toward a three-week low.

Chinese equities slid Thursday amid reports that regulators have asked some banks to identify their exposure to companies including billionaire Wang Jianlin’s Dalian Wanda Group and billionaire Guo Guangchang’s Fosun International. That came less than 36 hours after the MSCI announcement, which spurred mainland shares to their highest closing levels since December 2015.

Chinese shares have been weighed down this year by an official campaign against excessive borrowing, with the Shanghai Composite declining 3.6% in the last three months.

"The market continues to digest the incidents that triggered Thursday’s selloff," said Sun Jianbo, president of China Vision Capital Management in Beijing.

"It’s not an isolated situation and similar events could happen again in the future as China’s deleveraging is an ongoing process and that would drag valuations down."

Shanghai Lingang Holdings Corp. fell as much as 10% in Shanghai, while Shanghai Electric Group dropped 3.1% in Hong Kong. Both denied they were in contact with Tesla to explore car production in China.

Wanda Film Holding gained 2% following Thursday’s selloff after saying its controlling shareholder plans to buy up to 1 billion yuan of shares. Shanghai Fosun Pharmaceutical Group climbed 2.6% in Hong Kong.

Gas companies rallied Friday, led by China Resources Gas Group’s 9.3% gain, after China announced new rules for the industry. That should reduce regulatory uncertainty and restore the market’s confidence in the sector, RHB Securities analyst Tony Fei wrote in a note on Friday.

The Hang Seng Index was little changed, while the ChiNext gauge lost 1.1%.