BOFIT Weekly Review 2015/28
China takes serious measures to control stock market drop
With the on-going volatility in Chinese stock markets, the China Securities Regulatory Commission (CSRC) relaxed terms for purchasing shares on margin and tightened short-sale rules. Last week, the finance ministry offered an amendment to also allow pension fund money into stock markets from the beginning of August. Insurance companies have been permitted higher share ownership. The People’s Bank of China recently dropped its key reference rates and bank reserve requirements, however without specifically mentioning the stock market situation. The PBoC also made more liquidity available to brokers involved in margin trading. Transaction fees will also go down at the start of August.
Additionally, IPOs have been halted for the time being and the state enterprises are not allowed to reduce their ownership stake. On the contrary, they have been advised to increase their shareholdings. At the weekend, 21 securities brokers revealed they would invest at least 120 billion yuan ($20 billion) in a market stabilisation fund. They have committed to holding share at least until the Shanghai Index returns to 4,500 points (at Friday’s opening, the index stood at 3,707). Many other investment funds and mutual funds have announced plans to invest their own assets in shares. Some firms have repurchased their own shares.
By Wednesday (July 8), it was clear government stabilisation measures were inadequate, so the CSRC banned investors owning 5 % or more of an exchange-listed company from selling their shares for the next six months. The ban extends to officers and management of listed firms. As of Wednesday, nearly half of China’s firms listed in mainland had requested trading in their shares suspended. Shares recovered in Thursday and Friday markets, but the increase is difficult to interpret as trading of so many shares had been suspended.
Shares in Shanghai have slid about 30 % from their June peak. Shenzhen shares are off about 40 %. Even with the plunge, Chinese shares are still up 70–80 % from a year ago, which has made some observers to question the reasons behind the recent government actions.