21 October 2016
Investors monitor the stock market at a brokerage in Wuhan, Hebei province, as share prices continued their plunge Friday. Photo: AFP
Investors monitor the stock market at a brokerage in Wuhan, Hebei province, as share prices continued their plunge Friday. Photo: AFP

China takes emergency steps to prevent stock market crash

China’s stock markets face a make-or-break week after officials rolled out an unprecedented series of steps at the weekend to prevent a full-blown stock market crash, Reuters reported.

The government is anxiously awaiting the market opening Monday to see if the new measures will halt a 30 percent plunge in the last three weeks, or if panicky investors who borrowed heavily to speculate on stocks will continue to sell.

In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China’s state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

China has also orchestrated a halt to new share issues, with dozens of firms scrapping their plans for initial public offerings in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

“After the 28 companies suspended their IPOs, there will be no new IPOs in the near term,” the China Securities Regulatory Commission (CSRC) said in a statement Sunday night.

An online survey by fund distributor over the weekend, which polled more than 100,000 individuals, said investors believed stock indexes would rise more than 5 percent on Monday.

But many of those polled didn’t think the bounce will last long.

“You’re going to need the central bank to open the floodgates to take us back to 4,500 points in Shanghai,” the report quoted an unnamed investment manager in Shanghai as saying.

The Shanghai Composite Index was last at 4,500 on June 25 and is now trading 22 percent lower. 

Mainland Chinese stocks had more than doubled in just 12 months even as the economy cooled and company earnings weakened, resulting in a market that even China’s bullish securities regulators eventually admitted had become too frothy.

But the slide that began in mid-June, which the CSRC initially tried to downplay as a “healthy” correction after the fast run-up, has quickly shown signs of getting out of hand.

A surprise interest rate cut by the central bank last week, relaxations in margin trading and other “stability measures” did little to calm investors, who sent shares down a further 12 percent in the last week alone.

China’s top leaders, who are already struggling to avert a sharper economic slowdown, seem to be losing patience.

Earlier, in a series of initial announcements on Saturday, China’s top brokerages pledged to collectively buy at least 120 billion yuan (US$19.3 billion) of shares to help steady the market and said they will not sell holdings as long as the Shanghai Composite Index remains below 4,500.

The China Mutual Fund Association said 25 fund companies also pledged on Saturday to buy shares.

A further 69 fund firms said Sunday they would do the same.

Chinese state-owned investment company Central Huijin Investment Ltd. said Sunday it had recently been buying exchange-traded funds and would continue to do so.

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