CHINESE shares dropped in the morning, led by small-cap companies, after surveys showed small enterprises face difficulties in expanding and some investors sold their holdings to reap profit.

The Shanghai Composite Index, which tracks yuan-backed A shares listed in Shanghai, eased 1.16 percent to 2,272.65 at the noon break. Turnover hit 50.9 billion yuan (US$ 8.2 billion). The ChiNext small-companies index slid 2.55 percent to 1,025.33.

The Purchasing Managers' Index released yesterday by HSBC Holdings Plc and Markit Economics fell to 49.2, an eight-month low. The index mainly gauges the business performance and expectations of smaller firms.

Consumption-related companies withdrew on worry that slower economic growth may cripple consumer demand. Gree Electric Appliance Inc, China's biggest maker of air-conditioners, slipped 2.07 percent to 26 yuan. Television maker TCL Corp slumped 7.12 percent to 2.61 yuan.