Shares jump 6pc as China halts frantic market slide
Beijing's increasingly frantic attempts to stem a stock market rout were finally rewarded as Chinese shares bounced around 6pc yesterday, but the costs of heavy-handed state intervention are likely to weigh on the market for a long time.
The rebound came after China's securities regulator, in its most drastic step yet to arrest the slump, banned shareholders with large stakes in listed firms from selling. The banking regulator said separately it would allow lenders to roll over loans backed by stocks.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen raced higher to close up 6.4pc, while the Shanghai Composite Index bounced 5.8pc for its biggest daily percentage gain in six years.
But China's malfunctioning stock markets remained semi-frozen, with the shares of around 1,500 listed companies worth around €2.5 trillion - roughly half the market - suspended, and many of those still trading propped up by state-directed buying.
"The authorities are capable of slowing the selling and extending market support," said Mark Konyn, chief executive officer at Cathay Conning Asset Management in Hong Kong.
"However, this high level of intervention comes at a significant cost. Such intervention locks up ownership of shares, reduces liquidity and creates an overhang that could plague the market for years."
More than 25pc 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 destabilise 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 stock markets, which had more than doubled in the year to mid-June, has created a major headache for President Xi Jinping and other leaders.
Beijing had made ceding a "decisive" role to the market a centrepiece of economic reforms, but responded to the crash with a battery of supports, including an interest rate cut, suspension of stock listings and by pumping out cash from the central bank to prop up shares.
The Global Times, an influential tabloid published by the Communist Party's official newspaper, invoked the "national team" in an editorial supporting efforts to turn the tide.
"While there are disaster victims everywhere in China's stock market, the other scene is that the 'national team' is truly taking action," the paper said.