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China is just delaying the inevitable

Photo: Getty Images / File

In the wake of another 7% plunge in Chinese stocks, ending trade early for the second session in four, China’s stock market regulator, the CSRC, has announced further restrictive measures in an attempt to prevent a further market rout.

Following the close of trade on Thursday, something that came less than 30 minutes after the markets opened, the CSRC issued a statement restricting share sales by major shareholders of listed firms, arguing the move “will stabilise market expectations”.

According to Reuters, citing the CSRC document, major shareholders will only be permitted to sell 1% of a listed company’s shares every three months, with the process to be conducted through a centralised bidding system at an exchange.

In addition to limiting sales to 1% through a managed process, the CRSC also stated that major shareholders must provide 15 trading sessions’ notice before they will be able to sell their holdings.

It’s not exactly confidence inspiring.

As we wrote yesterday, the only thing keeping Chinese stocks afloat at present is government intervention. After today’s events, even that may be debatable.

Bans on selling such as the one announced today, along with state-backed buying from China’s “national team”, is the only thing preventing an even greater sell off.

It’s outright speculation, rather than fundamentals, than continue to drive the nation’s stock market. Increasingly it’s now centred on when the government will rescue stocks, an understandable outcome given its actions over the past six months.

Arresting malicious short sellers, plowing pension funds into the market, limiting futures trading, interrogating high-ranking officials of brokerage firms, among others. Everything bar the kitchen sink has been thrown at the market to prevent what it clearly wants to do – move back to fair value.

If the government intends to truly push through with financial market reforms, the first place they can start is with allowing market forces to play a role in the stock market.

You can read more here.

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