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 After a slump of nearly 30 percent in Chinese stocks since
mid-June, the China Securities Regulatory Commission (CSRC) has set
up a team to look at "clues of illegal manipulation across markets".
After market close, a CSRC spokesman said China would cut initial
public offerings and capital raisings and support long-term
investors entering the market to help stabilize prices.
It also said China's official margin lender for brokerages, which
makes loans available for stock market investment, would boost its
capital base to 100 billion yuan ($16 billion) from 24 billion yuan
to expand its business.
A flurry of policy moves over the past week, including an interest
rate cut and a relaxation of margin lending rules, had failed to
arrest the sell-off.
The People's Bank of China (PBOC) also rolled over 250 billion yuan
of medium-term loans to banks late on Friday to ensure adequate
liquidity in the system.
"The government must rescue the market, not with empty words, but
with real silver and gold," said Fu Xuejun, strategist at Huarong
Securities Co, before the CSRC and PBOC announcements, adding that a
market crash would hurt banks, consumption, companies and even
trigger social instability. "It's a disaster. If it's not, what is
it?"
The CSI300 index <.CSI300> of the largest listed companies in
Shanghai and Shenzhen dropped 5.4 percent to close at 3,885.92,
while the Shanghai Composite Index <.SSEC> shed 5.8 percent to
3,686.92 points.
Hong Kong's Hang Seng index <.HSI> fell 0.8 percent to 26,064.11.
For the week, the CSI300 lost 10.4 percent and the SSEC fell 12.1
percent.
The rout in China's highly leveraged stock market has become a major
worry for global investors, who fear a meltdown could destabilize
the world's second-largest economy at a time when growth is already
slowing.
Chinese stocks had more than doubled between November and mid-June,
fueled largely by retail investors using borrowed money.
"This is happening against an (economic) growth backdrop that
continues to look soft, as illustrated by the flat manufacturing
survey this week," noted analysts at Barclays.
"With growth data still soft, China remains a key uncertainty for
the global outlook."
SHORT SELLERS TARGETED
The China Daily newspaper said on Friday that the CSRC was probing
investors who used stock index futures to "short" the market - or
bet on prices falling.
Sources with direct knowledge told Reuters that the China Financial
Futures Exchange (CFFEX) had suspended 19 accounts from
short-selling for a month.
After market close, CFFEX said it was introducing transaction fees
on futures contracts on three indexes and strengthening the market
to combat short-selling activities.
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Guotai Junan Securities <601211.SS>, one of China's top brokerages,
said it would suspend lending securities to clients for
short-selling and step up monitoring of abnormal trading behavior by
short-sellers.
Much of the selling of Chinese stocks has been driven by "margin
calls", when a brokerage that has extended credit to an investor to
buy stocks demands more cash or collateral because prices have
fallen.
If those margin calls continue, it also could affect other markets
as investors need to raise cash.
"Some funds have closed their copper positions to send funds back to
China, in order to meet their margin payments on stock indexes,"
said one metals broker in Hong Kong.
Herald van der Linde, Asia equity strategist at HSBC, said there
were signs that some money being pulled out of stocks was going into
other assets, with a pick-up in physical property transactions.
"It could go to Hong Kong, it could go to property, it could go to
cash," he said. "But if they have to repay debt, it's basically
deleveraging, as well."
Beijing has been struggling since the weekend to find a policy
formula to restore confidence in its stock markets.
So far, rapid-fire steps including easing monetary policy,
encouraging more pension funds to invest in stocks and cutting
transaction costs have failed to stem the slump.
The CSRC has relaxed rules on using borrowed money to speculate on
stocks, letting brokerages set their own tolerance level on margin
calls and allowing the rollover of margin lending contracts.
On Friday, the regulator also said it would step up its monitoring
of markets to protect investors against the mis-selling of
investment products.
China releases second-quarter gross domestic product data on July
15, and many economists expect growth to dip below 7 percent, which
would be the weakest performance since the global financial crisis.
(Additional reporting by Chen Yixin, John Ruwitch, David Lin, Zhang
Xiaochong and Kazunori Takada in Shanghai, Michelle Price in Hong
Kong and; Writing by Wayne Cole, Alex Richardson and Will Waterman;
Editing by Rachel Armstrong)
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