Stocks down as jitters rise over audit of local debt

Chinese mainland stocks retreated Monday, as investors worried about a potential capital withdrawal from the market following news over the weekend that the government is to conduct an urgent audit to examine the total public debt.

The National Audit Office said Sunday that it will send 40,000 auditors to check local government debt levels.

Market participants fear that debt levels may be far more than suspected, which could lead local governments to trim infrastructure budgets, with a knock-on effect on economic activity.

Analysts said some State-owned companies may withdraw capital from the equity market to repay loans outstanding in order to pass the audit, further weighing on stock prices.

In addition, the National Bureau of Statistics released data showing a decline in profit growth among Chinese industrial companies. The number for June was 6.3 percent, compared with May's 15.5 percent.

The Shanghai Composite Index fell 34.54 points, or 1.72 percent, to 1,976.31 to post its fourth consecutive trading day of losses. The Shenzhen Component Index dipped 174.83 points, or 2.23 percent, to 7,668.53. Total turnover of the two stock exchanges was 159.25 billion yuan ($25.97 billion), slightly higher than Friday's 158.8 billion yuan.

Property developers, cement producers and financial institutions led the day's declines.

Local media reported that A-share listed companies had raised 1.94 trillion yuan in the first seven months of 2013, an amount higher than the total IPO revenues of the past 10 years. Banking stocks stumbled following the news.