The Chinese government is buying up shares to prop up its stock market, in a repeat of last year’s meltdown.
The so-called National Team is injecting cash into the market after Monday’s 7% crash, according to a report by Bloomberg News.
The government is also preparing to extend a ban on short selling — where investors borrow stocks and sell them, pocketing a profit if the price falls — in an effort to keep the stock market bouyant.
The sell-off on Monday saw about $590 billion wiped from Chinese shares, according to the Bloomberg report.
On Tuesday, with an hour left to trade, the Shanghai Composite Index is down around 1.47%.
The reaction is similar to that from the Chinese government over the summer, when shares plunged more than 40% in two separate crashes.
The Chinese state bought shares directly, limited debt-fuelled gambling on the markets and loosened pension policy to allow pension funds to hold more stocks. There were about 40 interventions but only direct buying kept markets up.
Here’s the list of policy actions China tried last time. Depending on how things go this year, the government may try the scatter-gun approach again:
2. Asset Management Association of China (AMAC) requests investors and fund managers to stay rational and not to panic.
3. Brokers loosen margin financing requirements; the practice of lending to retail investors who use the money to trade shares.
4. State Council decides to suspend large public share offerings until Shanghai Composite Index of shares returns to 4,500 level.
5. Police investigate three media outlets for spreading rumours and the government vows to impose heavy penalties for manipulation. Government-run news sources Xinhua and People’s Daily both publish articles calling for investors’ confidence.
6. Margin financing: some brokers lower threshold and loosen policy again.
7. Crackdown on short selling and several brokers suspended the business.
8. China Financial Futures Exchange (CFFEX) restricts index future trading.
9. China Securities Finance Corporation (CSFC) to use funds contributed by various brokers to buy exchange traded funds. Social Securities Fund (SSF) vows not to reduce existing equity positions in its portfolio.
10. China Insurance Regulatory Commission (CIRC) allows insurers to invest more in blue-chip stocks.
11. PBOC vows to maintain market stability and avoid systematic financial risk. It will provide ample liquidity to CSFC via interbank lending, financial bond, pledged financing, and relending facilities.
12. CSFC grants credit to 21 brokers via pledged stocks to allow them buy more equities.
13. CSFC invests in mid cap stocks via mutal funds.
14. China Securities Regulatory Commission (CSRC) suspends reviews of share offerings.
15. China Banking Regulatory Commission (CBRC) allows banks to roll over matured loans pledged by stocks.
17. CSFC says it will purchase mutual fund products to stabilise liquidity.
18. CSRC probes trading system vendor Hundsun Tech for allowing illegal margin financing.
19. China tightens rules on futures trading.
20. CSDC to extend business hours for major shareholders to increase their own companies’ stock holdings.
21. CSRC demands brokers’ proprietary trading to maintain net purchase on daily basis and it will allow brokers equity investment to exceed risk limit during special period.
22. CSFC receives RMB 1.3 trillion from 17 commercial banks.
23. CSRC clarifies that government money will not be exiting the stock market.
24. CSRC denies rumour that state buying has stopped.
25. CSFC grants Rmb200 billion liquidity to five mutual funds.
26. CIRC urges insurers not to net sell equities in near future and demands daily report on equity holdings.
27. China Securities Depository and Clearing Co., Ltd (CSDC) cuts fees.
29. Shanghai Stock Exchange (SHEX) and Shenzhen Stock Exchange (SZEX) significantly raises commission to discourage program trading.
30. Policy banks announce RMB 1 trillion bonds to support infrastructure and construction in coming years.
33. CSRC vows to crack down on margin financing and illegal short selling.
34. PBOC adjusts currency fix, devaluing by 3%. Four out of five of theCSFC-invested mutual funds have started investing in A-share stock market.
35. CSFC publishes its exit plan: Part of its stock holding will be transferred to Huijin; CSFC says it won’t exit the stock market over the next few years.
36. Ministry of Finance (MOF) relaxes rules for state-owned venture capital funds.
37. CSRC investigates HOMS and Hithink RoyalFlush for illegal lending to finance retail stock purchases (margin financing).
38. CSRC suspends approval of 191 mutual funds and seeks to encourage more risk-tolerant investors.
39. State Council issues new pension fund investment guidelines, allowing stock investment at 30% of net assets.
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