China steps up efforts to tackle stock market crash

06 Jul 2015


China has intensified steps to arrest an unprecedented slump in the country's equity market, which has resulted in an almost 30-per cent plunge in the benchmark Shanghai Composite Index in the past one month.

The index has fallen from its seven-year peak of 5,023 on 5 June to 3,687, after registering a 5.8-per cent fall on Friday. The stocks had more than doubled during the seven-month period from November to June, on the back of sustained retail investment.

The stock market rout in the world's second-largest economy has raised serious concerns for global investors who fear derailment of the country's growth prospects, which are already on a slide.

These would add to the risks to the global economy arising out of a possible Greek exit from the European common currency bloc after the country's citizens yesterday voted a clear ''No'' to an international bailout proposed by its international creditors.

The China Securities Regulatory Commission (CSRC), the country's stock market watchdog, announced yesterday that it would allow the central bank, People's Bank of China, to provide liquidity support of the government-backed financing agency, China Securities Finance Corp (CSFC).

In a statement, CSRC said that with the support of the People's Bank of China, CSFC could expand its business and continue to help the government to stabilise the stock market.

The extent of bank funding is expected to be in the range of 250 billion yuan ($40 billion).

The commission last week said that it would boost the capital base of CSFC over four times to 100 billion yuan ($16 billion) from 24 billion yuan.

CSRC also said that it would slow the pace of initial public offerings and capital raising in its efforts to stabilise the market.

The regulator said Friday that it had opened an investigation into market manipulation ''based on reports of unusual movements'' in securities and futures markets, which is likely to focus on short selling.

Last week, the central bank cut interest rate and eased reserve requirement to arrest the stock market sell-off, without much success. The CSRC relaxed rules on margin lending and cut trading fees to boost the market.

Meanwhile, China's top 21 stock brokerages said Saturday that they would invest a total of at least 120 billion yuan ($19.3 billion) in shares to help to stabilise the country's plunging equity market.

Securities Association of China (SAC), a self-regulatory body functioning under the supervision of CSRC, said in a statement that the brokerages expressed ''full confidence'' in the development of the country's capital markets.

''Twenty-one securities brokerages will jointly invest 15 percent of net assets as of the end of June, or no less than 120 billion yuan, in blue chip exchange traded funds,'' it said.

According the SAC's statement, the brokerages would not sell off holding as long as the Shanghai composite index is below, 4,500.

Listed companies among the 21 brokerage firms may also resort to share buybacks.

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