* SSEC -0.1 pct, CSI300 flat pct, HSI -0.3 pct
* China investor confidence rise to highest level since Jan 2016
* Biofuel makers surge as China plans nationwide use of ethanol
SHANGHAI, Sept 13 (Reuters) - China stocks were little changed on Wednesday morning, hovering near 20-month highs, thanks to rising investor confidence over the economic outlook even as regulators tap the brakes on excess credit.
A correction in banking stocks and sell-off in firms tapped into Apple Inc’s supply chain were counteracted by strength in coal miners amid China’s sweeping pollution crackdown.
The blue-chip CSI300 index was unchanged at 3,837.34 points by the lunch break, while the Shanghai Composite Index lost 0.1 percent, to 3,376.39 points.
Many expect the market to extend its uptrend. An index tracking investor confidence rose to 58.6 points, the highest level since January 2016, as investors were more optimistic toward economic situations both at home and abroad, according to the China Securities Investor Protection Fund.
China’s economy has defied expectations for a slowdown this year, with early fears a debt-crackdown will sharply knock output eclipsed by a construction boom and resurgence in global growth.
Also supporting the market, margin financing net buys have risen in the past two weeks to the highest level this year, according UBS Securities, reflecting improving risk appetite.
UBS strategist Gao Ting said that although policy makers remained focused on reducing financial risks, “the recent strength of the RMB against the USD points to lower risk to domestic liquidity from capital outflow.”
Indeed, the yuan’s surge this year has helped increase foreign purchases of Chinese equities. Net purchases of mainland A-shares via the “Stock Connect” scheme increased for five months in a row to 27 billion yuan in August, while foreign holdings under the Qualified Foreign Institutional Investor (QFII) scheme jumped 18 percent in the second quarter.
Shares of listed firms that engage in ethanol production surged, after state media reports that China plans nationwide use of ethanol in gasoline fuel by 2020, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog.
COFCO Biochemical Anhui jumped 6 percent, while Shandong Longlive Bio-Technology surged 10 percent.
China’s sweeping pollution crackdown also fuelled expectations of more shutdowns in coal mines, potentially pushing up coal prices and benefiting the country’s biggest coal producers.
However, Apple-linked stocks such as Zhejiang Crystal Optech and Goertek slumped, as investors wound off their bets after the launch of the much-anticipated iPhone X, with the Nov. 3 ship date prompting questions about possible supply constraints ahead of the holiday season.
Hong Kong shares dipped, despite record highs on Wall Street, as financial and utility shares dragged.
The Hang Seng index dropped 0.3 percent, to 27,889.95 points while the Hong Kong China Enterprises Index lost 0.5 percent, to 11,191.65.
Reporting by Samuel Shen and John Ruwitch; Editing by Shri Navaratnam