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 The Shanghai and Shenzhen markets fell 3 percent in morning trade,
taking their losses to more than 8 percent since investors stampeded
without warning on Tuesday.
But state-backed buyers later rushed in, enabling stocks to finish
the day more than 1 percent higher.
It is a pattern that has been repeated several times since Beijing's
"national team", a coalition of state-backed financial institutions
and regulators, went into action early last month with instructions
to halt a crash in share prices.
Investors say China's stock markets - which were never for the faint
of heart - have become dysfunctional since the government's massive
and unprecedented rescue effort.
Prices move sharply on speculation about the national team's
activities as investors focus on making quick trading profits by
pre-empting its next move.
Late in the afternoon on Wednesday, a slew of companies announced
state funds had bought stakes in them, which investors took as a
sign that the government was signaling its continued support for the
market. As of early evening, around 20 firms had made such
announcements.
Long-term investors are staying well to the sidelines, moving their
cash into bonds and the money market, as roller-coaster markets and
a gloomy stream of economic news heighten their anxiety over the
world's second-largest economy.
"We advise strapping in for a bumpy ride," said Tim Condon, head of
Asia research for ING Bank in Singapore.
The Commerce Ministry added to that anxiety on Wednesday, saying
exports could continue falling in coming months, after an 8.3
percent plunge in July, their biggest drop in four months.
The economy is already under threat of deflation and policymakers
are struggling to revive bricks-and-mortar investment. Beijing's
official growth target is 7 percent for this year, but some
economists estimate current levels are closer to half that.
Combined exports and imports for the first seven months of 2015 fell
7.2 percent from the same period last year, compared with Beijing's
full-year target of 6 percent growth.
"The possibility of exports to see year-on-year decline in some
months could not be ruled out. But we will still see export growth
for the whole year," Commerce Ministry spokesman Shen Danyang told a
regular monthly briefing.
"For the whole year, the foreign trade will face more severe
situation than we expected."
Only last month, the ministry predicted exports would improve in the
second half of this year from the first half.
CENTRAL BANK INJECTS LIQUIDITY
The Shanghai market closed up 1.2 percent and Shenzhen jumped 2.2
percent. The benchmark CSI300 index, comprising blue-chip stocks
from both markets, rose 1.6 percent.
The rebound followed news the central bank would offer more
medium-term funds to banks, in addition to a 120 billion yuan ($19
billion) injection of funds into money markets on Tuesday.
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The central bank confirmed later in the day it lent 110 billion yuan
of six-month cash to help maintain sufficient liquidity in the
market.
Sources familiar with the medium-term funding plan said this would
help offset the drain on liquidity caused by China's unexpected
devaluation of the yuan last week.
The prospect of further weakening has prompted investors to swap
yuan into U.S. dollars.
Capital outflows from China are expected to increase as investors
grow more pessimistic over the outlook for the currency and the
economy, and calls are growing for the People's Bank of China (PBOC)
to roll out support measures more swiftly and aggressively to shore
up growth.
Highlighting growing anxiety, money-market interest rates ticked
higher on Wednesday, despite the fresh fund injections from the
central bank. The weighted average benchmark seven-day repurchase
agreement rate rose four basis points to 2.53 percent.
The PBOC devalued the currency on Aug. 11, within a few days of the
poor July export data and other official figures showing
factory-gate prices continued their three-year slide in July,
touching a six-year low.
A week later, the central bank is still struggling to control the
fallout. Though it insists the yuan has no reason to fall further,
most economists believe there is political pressure to let it slowly
slide, which will put more competitive pressure on China's
export-reliant Asian neighbors.
The yuan has fallen 3 percent against the dollar since the eve of
the devaluation, but that marks only a partial reversal of its gains
over the past 12 months, especially against currencies of major
trading partners Japan and the euro zone.
Bank of America Merrill Lynch said on Wednesday the yuan could be
allowed to depreciate to 6.5 to the dollar by the end of this year
and 6.9 by end 2016, from around 6.40 now.
The devaluation last week triggered falls in other Asian currencies
such as those of Australia, New Zealand, Indonesia, Singapore and
Taiwan, fuelling fears of a currency war.
On Wednesday, Vietnam devalued the dong for the third time this year
as authorities sought to support a languid export sector facing
fresh challenges from the Chinese devaluation.
(Additional reporting by Xiaoyi Shao in BEIJING and Kazunori Takada
in SHANGHAI; Writing by Mark Bendeich; Editing by Kim Coghill)
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