China bans major shareholders selling stakes for six months as markets slightly stabilise
Chinese stocks rallied this morning after the securities regulator banned shareholders with large stakes in listed firms from selling, in Beijing's most drastic step yet to stem a sell-off that has roiled global financial markets.
As the daily drumbeat of official announcements aimed at propping up the sinking equity market continued, state news agency Xinhua said police would investigate "malicious" short-selling of stocks, and the banking regulator said it would allow lenders to roll over loans backed by stocks.
In what was at least a temporary reprieve, the CSI300 index of the largest listed companies in Shanghai and Shenzhen jumped 5.8pc in morning trading, while the Shanghai Composite Index gained 5.3pc. Both had tumbled around 6-7pc yesterday.
In the most draconian measure so far, the China Securities Regulatory Commission (CSRC) said on its website late yesterday that holders of more than 5pc of a company's stock would be barred from selling for the next six months.
The CSRC, which warned earlier yesterday of "panic sentiment" gripping a market dominated by ordinary retail investors, said it would deal severely with any shareholders who violated the restriction.
The prohibition is unlikely to have much impact on foreign investors. No Qualified Foreign Institutional Investor (QFII), one of the main channels of foreign investment in China, holds more than a 5pc stake in a Shanghai or Shenzhen listed company. Foreign investors who hold more than a 5pc stake in Chinese firms are all strategic investors.
More than 30pc has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilize the financial system is now a bigger risk than the crisis in Greece.
"We are inclined to believe that Beijing will escalate policy responses until they start working," said economists at Credit Suisse in a research note.
"If market conditions do not stabilize, we expect a statement of 'whatever it takes' from the Chinese government, given that social stability is at stake and financial systemic risks are evident."
The United States has voiced worries the stock market crash could get in the way of Beijing's economic reform agenda.
The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth.
Beijing, which had made handing a larger role to market forces a centerpiece of its economic reforms, has responded with a battery of measures to support the stock market, including an interest rate cut, suspension of initial public offerings and enlisting brokerages to buy stocks, backed by cash from the central bank.