Market slips on weak outlook

China's benchmark stock index retreated 1.1 percent on Tuesday, the biggest drop in three weeks, dragged down by a weak consumption outlook and expectations of slower economic growth.

The Shanghai Composite Index fell 24.91 points to 2,217.01, while the CSI 300 Index, which tracks the 300 biggest enterprises on the Shanghai and Shenzhen exchanges, lost 1.5 percent to 2,493.34 at the close.

Liquor-making enterprises were the biggest losers, losing 3.07 percent on average.

Hebei Hengshui Laobaigan Liquor Co Ltd led the sector's losers, dropping 7.05 percent. Kweichou Moutai Co Ltd, the nation's most famous white spirit maker, declined 3.28 percent, its largest fall since March 18.

The electronic information and automobile manufacturing sector also dropped sharply, indicating weak investor confidence over consumption growth.

"The government's clampdown on corruption is squeezing consumer goods, especially high-end white spirits and luxury products, and the trend may continue for the rest of this year," said Wei Xiaopo, a Chinese mainland consumer market analyst at CLSA Asia-Pacific Markets.

Last month, the National Bureau of Statistics released retail figures showing a 12.8 percent growth in total sales of consumer goods in April, a three-month high, compared with 12.6 percent in March.

However, Yao Wei, China economist with Societe Generale, said the figures were helped by inflation and a boost particularly in jewelry sales, and the actual story was "less encouraging than suggested".

Industrial production figures for April showed a 9.3 percent increase in factory output year-on-year, lower than expectations of about 9.5 percent, and those are likely to affect economic growth predictions in the coming months, Yao added.

"It seems a large portion of new credit has gone to debt servicing or to sustaining projects, and to solve that there is likely to be no other solution than a rise in corporate failures and structural reforms," she said.

Huang Yiping, chief economist on China at Barclays Capital, praised the new government for moving "swiftly to prepare for new reforms after taking office less than two months ago", but added that reducing income inequality and improving the social welfare system must be priorities, which could help raise consumption levels.

"These reforms should support the ongoing transition toward a more balanced economic structure, which would see more consumption and less investment, accelerated industrial upgrading and more volatile economic cycles," said Huang.

The Shanghai Composite Index has dropped 8.9 percent from the year's high on Feb 6, and 2.3 percent from the start of the year.