Most China stocks fell, led by utilities and industrial companies, on concern government controls on electricity prices amid power shortages will hurt economic growth.

Huaneng Power International Inc. fell to the lowest level in three weeks after the China Securities Journal said a nationwide price increase is "unlikely." A gauge tracking industrial companies in the CSI 300 Index slid to a four-month low on concern power shortages will hurt production. Industrial & Commercial Bank of China Ltd. and China Vanke Co., the nation's largest developer, advanced on speculation their share prices were undervalued relative to their earnings prospects.

"Power shortages are a major problem that may drag China's economic growth for the short term, as it will restrict manufacturers' production and increase their operating costs if prices rise in some areas," said Mei Luwu, a Shenzhen-based fund manager of Lion Fund Management Co., which oversees more than $7.8 billion. "Some low-valuation stocks like banks and developers offer buying opportunities for long-term investors who are building up allocations."

Five stocks fell for every three that gained in the Shanghai Composite Index, which rose 3.13 points, or 0.1 percent, to 2,862.71 as of 1:35 p.m. local time. The measure, which tracks the bigger of China's stock exchanges, has lost 0.3 percent this week, set for its fourth decline in five weeks. The CSI 300 Index added 0.2 percent to 3,126.66.

The Shanghai Composite has fallen 6.3 percent from a five- month high on April 18 amid concern government measures to cool inflation will slow corporate earnings growth. The drop pared this year's gain for the Shanghai gauge to 2 percent.

Striking Balance

Inflation remains "high" and the Asian nation needs to strike a balance between economic growth and consumer prices, Zhou Xiaochuan, governor of the People's Bank of China, said at the Lujiazui Forum in Shanghai today. The central bank has raised the reserve-requirement ratio for banks 11 times since the start of 2010 and boosted interest rates four times.

Huaneng Power dropped 1.8 percent to 6.12 yuan, heading for its lowest close since April 29. Guangdong Electric Power Development Co. retreated 2.1 percent to 6.11 yuan in Shenzhen.

A nationwide increase of China's power prices is "unlikely," the China Securities Journal reported today, citing China State Grid Corp. Vice President Shu Yinbiao. Price adjustments will depend on each province, the newspaper cited Shu as saying.

The country may face a summer shortage of 30 gigawatts as supply lags behind demand growth, the China Electricity Council said April 29. Coal-fired power stations in provinces such as Gansu, Hubei, Hunan, Shanxi and Shaanxi have closed, resulting in the worst deficit since 2004, Xinhua reported May 17.

Banks, Developers

The gauge tracking industrial companies in the CSI 300 Index lost 0.4 percent, the second-biggest drop among 10 industry groups, set for its lowest close since Jan. 25. Shantui Construction Machinery Co. sank 2 percent to 19.07 yuan. Taiyuan Heavy Industry Co. fell 1.8 percent to 19.73 yuan.

A gauge of financial companies including property companies and banks in the CSI 300 rose 0.6 percent, the most among the index's 10 industry groups. The industry measure trades for 10 times estimated profit, a 29 percent discount to the broader CSI 300, according to data compiled by Bloomberg.

Industrial & Commercial Bank, the world's largest by market value, gained 0.7 percent to 4.60 yuan. The stock is valued at 8 times estimated earnings, compared with a record low of 7.6 times set in January, Bloomberg data show.

Inflation Peak

China Vanke added 0.5 percent to 8.30 yuan. Poly Real Estate Group Co. climbed 0.8 percent to 10.19 yuan.

China's property stocks may perform better than so-called consumer staple companies as inflation peaks, according to Credit Suisse Group AG. Global emerging-market inflation may have peaked in January based on monthly percentage changes in consumer price indexes, Credit Suisse analysts led by Sakthi Siva wrote in a report.

This is "particularly true" in China and may signal a rally in property shares, the analysts said, citing the performance of the MSCI China Real Estate Index in 2004 and the stocks' valuations. Evergrande Real Estate Group Ltd. offers the biggest "discount," they wrote.