China unveils new measures to prop up stocks

By: | Published: July 8, 2015 11:52 AM

In a flurry of new moves to halt a stock market slide, China's government on Wednesday told state-owned companies to buy shares

china stocksIn a flurry of new moves to halt a stock market slide, China’s government on Wednesday told state-owned companies to buy shares. (Reuters)

In a flurry of new moves to halt a stock market slide, China’s government on Wednesday told state-owned companies to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading.

Hundreds of companies have announced a halt to trading in their shares after emergency measures announced last weekend failed to stop a slide that has caused China’s main market index to decline by more than 30 percent since early June.

The decline threatens to fuel political tensions and set back Communist Party plans to use financial markets to make China’s state-dominated economy more productive. The party wants to encourage more public stock ownership but some small investors who have seen their holdings plunge in value say they will buy no more.

On Wednesday, the Cabinet agency that oversees China’s biggest state-owned companies said it had told them not to sell shares and to buy more “in order to safeguard market stability.”

The China Insurance Regulatory Commission said the amount of their assets Chinese insurers are allowed to invest in stocks will be increased to 40 percent from 30 percent. The agency said the amount of a single blue-chip company’s shares that an insurance company can buy will be increased to 10 percent from 5 percent.

The central bank said it will provide “ample liquidity to support stock market stability” through a government-owned company that lends to brokerages to finance share purchases, a practice known as margin lending. The People’s Bank of China gave no indication how much money it might inject into the system.

The central bank statement was read on state TV’s national midday news.

Chinese authorities have tried to reassure investors that the price decline is normal following a boom that saw the Shanghai Composite Index soar by more than 150 percent since late 2014. On Monday, the flagship Communist Party newspaper, People’s Daily, said the economy can main steady growth and provide “solid fundamentals” for “healthy development of capital markets.”

Such reassurance has done little to halt the declines. On Wednesday, the Shanghai index tumbled 4 percent and Hong Kong’s market benchmark dived 4.2 percent.

The emergency measures announced so far are aimed at shoring up the prices of shares in major state-owned companies, while those of smaller and private companies have received little support.

The weekend announcements included a pledge by state-owned brokerages to buy blue-chip stocks, or shares in major state companies.

That helped to boost prices this week of major companies such as PetroChina Ltd., Asia’s biggest oil and gas producer. But shares in smaller companies have fallen.

That has prompted hundreds of companies to ask the mainland’s two exchanges to suspend trading in their shares after prices of some fell by more than 50 percent. Dozens with shares traded in Hong Kong also have requested suspensions.

Some 787 companies had suspended trading on the exchanges in Shanghai and the southern city of Shenzhen as of the end of trading on Tuesday, the newspaper China Business News reported. It said more asked to be suspended later Tuesday, raising the total to more than 1,000.

That would be almost 36 percent of the total of 2,802 companies traded in Shanghai and Shenzhen.

In Hong Kong, shares in which trading was suspended included Sinopec, the country’s No. 2 state-owned oil company.

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