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Government intervention is the only thing keeping China's stock market afloat

Picture: Getty Images

China’s stock market regulator, through the state-run People’s Daily Newspaper, has announced it will extend a six-month ban on stock sales by large shareholders.

According to newspaper, the CSRC is currently in the process of drafting permanent laws that will restrict sales by major shareholders, presumably in an attempt to calm already frayed investor nerves.

On Monday, the year’s first trading session, Chinese stocks were obliterated, falling 7% as investors rushed to sell before a six-month ban on major shareholder sales was scheduled to end.

The CSRC announced on July 8 last year that investors with shareholdings exceeding 5% in any one listed entity, along with corporate executives and directors, would be prohibited from selling stocks for a six month period. January 8 – Friday this week – was the date that the ban was scheduled to end.

While the decision has done little to enhance the prospect of meaningful financial market reforms arriving in China anytime soon, it has provided a short-term boost to stocks.

With less than a hour to trade on Wednesday, the benchmark Shanghai Composite index has rallied 1.8%, mirroring similar gains in other Chinese bourses.

Despite the short-term boost to confidence, the fact investors trampled over each other to sell on Monday suggests that sentiment, and indeed fundamentals underpinning the stock market, remain undeniably weak.

If it wasn’t known before it is now – the only thing keeping the Chinese stock market flat at present is continued government intervention.

One can only imagine what would have happened had it not been for banning shares sales and ordering share purchases.

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