Shares continue to drop despite supportive policies
China's securities watchdog said late Thursday that it will investigate alleged market manipulation activities after a recent slump in Chinese stock and futures trading.
The China Securities Regulatory Commission (CSRC) said in a statement that its decision was based on unusual moves in the stock and futures exchanges, and it vowed to crack down on illegal activities.
Chinese stocks continued to fall on Thursday but at a slower rate following a series of support measures. Experts believe more measures will be rolled out to prevent systematic financial risks if the downward trend continues.
The benchmark Shanghai Composite Index slid by 6.34 percent in afternoon trading and recovered somewhat, closing still down 3.48 percent to 3,912.77 points on Thursday.
The CSRC released several measures late Wednesday after the benchmark index tumbled 5.23 percent, including lowering transaction fees for stock buyers and sellers, and relaxing rules for margin trading that allows investors to use borrowed money to buy stocks.
But the latest move did not immediately reverse the downside in the A-shares market.
The smaller Shenzhen Component Index slid 5.32 percent on Thursday. The ChiNext Board, China's NASDAQ-style board that tracks high-tech and start-ups, also lost 3.99 percent.
Rumors have been circulating on the Internet that the market slide was triggered by foreign investors' short selling activities.
Short selling is selling a stock that is not owned by the seller, but in anticipation of a decline in value.
"Today's performance fell short of my expectations, but there were signs the market was stabilizing in afternoon trading, so I will hold on to my shares to wait for a further rebound," said Zhang Yue, a 32-year-old investor in Shanghai.
Li Yongsen, a finance professor at the Renmin University of China, also attributed the market volatility to high leverage, the use of borrowed capital to increase the potential return of an investment, which serves as a double-edged sword that inflated the A-shares market by as much as 110 percent since late 2014 and also exaggerated the slump in the past few weeks.
Liu Shuwei, a scholar at the Central University of Finance and Economics, wrote Thursday that she believes the mass share selling by company executives led to the slump in A-shares stocks.
Major shareholders and senior executives of about 1,300 mainland-listed companies sold shares worth nearly 500 billion yuan ($80.6 billion) in the first half of the year, nearly double last year's whole-year level, according to data compiled by financial information provider iFind.
The recent dramatic fall in the mainland stock market, which has wiped out nearly $3 trillion in market capitalization since June 12, sent a warning to China's economy that has already faced downward pressure such as sluggish external demand and weak investments.
"The short-term drop in the stock market will pose systematic risks to the financial sector, so it is normal for authorities to support the market and restore investor confidence by introducing administrative measures," Li said.
"That does not mean China's financial reform or opening-up has scaled back," he added.
Zhou Xiaochuan, the governor of the People's Bank of China, the country's central bank, said China will continue to promote financial reform and innovation and speed up its financial opening-up, adding that it will stick to the bottom line of "preventing systematic or regional financial risks," according to a statement published on the central bank's website Thursday.
Official data showed the number of Chinese mainland stock investors has topped 90 million. The continuous fall in the stock market will squeeze their personal wealth.
"They will have less purchasing power, which will even affect the country's auto and home sales," Lian Ping, chief economist at the Bank of Communications, told the Global Times Thursday.
The sluggish stock market will also affect the launch of IPOs, making it difficult for companies to get financing from the capital markets, Lian said.
"Chinese authorities still have many tools at their disposal to stabilize the market and prevent systemic risks, such as suspending new IPOs and lowering the stock trading stamp duty," Li said.
State-owned institutional funds can also buy shares in large quantities to stabilize the market, Li Daxiao, chief economist at the Shenzhen-based Yingda Securities Co, told the Global Times Thursday.
