Tingshu Wang/Reuters/File A Chinese national flag flutters outside the China Securities Regulatory Commission (CSRC) building on the Financial Street in Beijing, China.
Hong Kong CNN — China’s leading securities regulator has restricted short-selling in an attempt to stop a prolonged downturn in the $6 trillion stock market that began in 2021.
The China Securities Regulatory Commission stated on Sunday that it would “fully” halt the lending of restricted shares on mainland China’s stock exchanges. The limitations, which went into effect on Monday, will impact shares held by company employees or strategic investors and could not be traded in the stock market for a specific period, but could still be lent to others for short-selling.
Short sellers borrow shares from a broker, then rapidly sell them with the expectation of buying them back at a lower price before they have to give back the shares.
The regulator also informed securities financing firms that borrow shares from institutional investors to wait one day before providing them to brokerages, which can then lend them to short-sellers. Previously, these shares could be instantly made available to brokerage firms.
China had previously imposed some restrictions on short-selling of shares held by strategic investors in October, but the stock markets continued to decline, and analysts are concerned that the new measures will also fail.
“The [mainland Chinese] markets were largely unaffected by this policy change,” said Ken Cheung, chief Asian foreign exchange strategist for Mizuho Bank in Hong Kong.
On Monday, the Shanghai Composite Index increased by 0.3%, while the Shenzhen Component Index decreased by 1.6%. Investor sentiment has also deteriorated following a Hong Kong court decision ordering Evergrande, the symbol of China’s property crisis, to liquidate.
“The liquidation at least reminds investors of China property downturn and may keep foreign investors away from returning to Chinese investments for the time being,” Cheung said.
Bloomberg/Getty Images The Shenzhen stock exchange is the second-largest in mainland China after Shanghai.
Calm returns but challenges remain
Chinese authorities have increased their efforts to stop the stock market crisis in the past week.
Key market indexes plummeted last Monday, pushing year-to-date losses to between 7% and 10%. Then, after a series of unusual interventions and pronouncements by concerned Chinese officials, Hong Kong’s Hang Seng Index (HSI) rebounded to finish last week with a 4.2% gain, while the blue-chip Shanghai Shenzhen CSI300 recorded a 2% weekly gain.
Last Tuesday, Bloomberg reported that Chinese authorities were deliberating ordering state-owned enterprises to use funds held in offshore accounts to buy shares worth up to 2 trillion yuan ($282 billion). A day later, in an unprecedented move, regulators said they were contemplating evaluating the performance of the heads of state-owned companies based on their stock market value.
On the same day, Li Yunze, director of the recently-established National Administration of Financial Regulation (NAFR), affirmed at an international financial conference in Hong Kong that China’s $64 trillion financial industry would be further opened to international investors.
Hours later on Wednesday, Pan Gongsheng, governor of the People’s Bank of China, unexpectedly announced that the central bank would reduce the amount of cash banks are required to hold as reserves, providing 1 trillion yuan ($141 billion) in long-term liquidity to the economy.
