Panic sell-off to blame for market slump: Zoellick
Former World Bank president Robert Zoellick on Sunday denied suspicions that the slide in the Chinese mainland stock market was caused partly by foreign investors' short-selling activities, saying that panic selling had led to the market plunge.
The amount of foreign investment only accounts for 1 to 2 percent of the A-share market, so it is hard to imagine how foreign investors could have such a big effect, news portal sina.com.cn reported Sunday, citing a speech by Zoellick at a financial forum held in Shanghai.
Short selling is selling a stock that isn't owned by the seller, in the anticipation that the price will go down so that a profit can be made when the stock is repurchased.
Currently, foreign investors have access to the A-share market mainly through the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes, but the amount of investment permitted by the two schemes is small compared to the turnover and market capitalization of the A-share market.
Zoellick suggested China should further open up its equity market, and encourage pension funds, insurance companies and foreign investors to enter the market.
China's stock market has plunged by around a quarter since reaching a peak in mid June and a series of government support measures initially failed to arrest the decline. Amid growing concerns about the situation, there was speculation that foreign investors had made gains by deliberately shorting mainland-listed shares.
Robert Dohner, deputy assistant-secretary for Asia at the U.S. Department of the Treasury, also said Thursday that the drop in China's mainland stock market was the result of a domestic sell-off rather than market manipulation by U.S. investors, as the A-share market's integration with the rest of the world's markets is very small, media reports said Thursday.
Chinese authorities have made an unprecedented series of efforts to stabilize the market and restore investor confidence, such as suspending the approval of new IPOs, allowing the central bank to provide liquidity support to securities firms, banning big shareholders in listed firms from selling for six months and probing possible short-selling activities.
Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC), told a regular press briefing on Friday that there might have been "malicious" short-selling activities in the securities spot market and futures market.
The Ministry of Public Security began an investigation into the issue on Thursday. The stock market rebounded on the same day, and the rise continued on Friday.
A team sent out by the ministry, led by Vice Minister of Public Security Meng Qingfeng, arrived in Shanghai on Friday, and found evidence that some trading companies might have manipulated stock and futures trading, the Xinhua News Agency reported Sunday.
The team is still carrying out further probes, the report said, without giving any details.
"Cracking down on illegal market activities plays an important role in stabilizing the market and restoring investor confidence," Liu Junhai, professor of law at the Renmin University of China, told the Global Times Sunday.
According to China's laws, people who are accused of market manipulation activities could face a fine of up to five times their illegal gains and a sentence of up to 10 years in prison.
"China will punish those who violate laws and regulations, whether they are domestic or foreign investors, institutional or retail investors," Liu said.
Li Shaojun, an analyst with Min-sheng Securities, said the stock market has shown signs of stabilizing following Thursday and Friday's rebounds, but it is still too early to say that the market has fully recovered.
As trading in half of all mainland-listed firms is still suspended, the market will need more liquidity when trading resumes, he said in a research note sent to the Global Times on Friday.
