Hong Kong
CNN
—
China’s top securities regulator is taking action to address the ongoing $6 trillion-dollar stock market downturn that started in 2021.
The China Securities Regulatory Commission has announced that it will “fully” suspend the lending of restricted shares on mainland China’s stock exchanges.
The restrictions, which took effect on Monday, will impact shares held by company employees or strategic investors that are prohibited from being traded in the stock market for a certain period but can still be lent to others for short-selling.
Short sellers borrow shares from a broker and quickly sell them with the hope of buying them back later at a lower price before they have to return the shares.
Additionally, the regulator instructed securities financing firms to wait one day before providing borrowed shares from institutional investors to brokerages, which can then lend them to short-sellers. Previously, these shares could be immediately made available to brokerage firms.
In October, China had already placed limits on short-selling of shares held by strategic investors, but the stock markets continued to decline, and analysts are concerned that the new measures may also have little effect.
“The [mainland Chinese] markets were largely unresponsive to this policy change,” said Ken Cheung, chief Asian foreign exchange strategist for Mizuho Bank in Hong Kong.
On Monday, the Shanghai Composite Index was up 0.3%, while the Shenzhen Component Index was down 1.6%. Investor sentiment has also soured following a Hong Kong court order for the liquidation of Evergrande, a prominent company in China’s property crisis.
“The liquidation at least reminds investors of China’s property downturn and may deter foreign investors from returning to Chinese investments for the time being,” Cheung said.
Calm returns but challenges remain
Chinese authorities have intensified their efforts to address the stock market downturn over the past week.
Major market indexes experienced significant declines last Monday, resulting in year-to-date losses of 7% to 10%.
Subsequently, following a series of unusual interventions and announcements by concerned Chinese officials, Hong Kong’s Hang Seng Index (HSI) rebounded to end the week with a 4.2% increase, while the blue-chip Shanghai Shenzhen CSI300 registered a 2% weekly gain.
Last Tuesday, Bloomberg reported that Chinese authorities were considering instructing state-owned enterprises to use funds held in offshore accounts to purchase shares worth up to 2 trillion yuan ($282 billion).
A day later, regulators announced that they were contemplating assessing the performance of the heads of state-owned companies based on their stock market value, an unprecedented move.
On the same day, Li Yunze, director of the National Administration of Financial Regulation (NAFR), pledged at an international financial conference in Hong Kong to further open China’s $64 trillion financial industry 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, potentially providing 1 trillion yuan ($141 billion) in long-term liquidity to the economy.
