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Industryweek 9187 China Stock Market

China Scrambles to Shore Up Stocks After Record Fall

July 27, 2015
State-backed China Securities Finance Corporation (CSFC) has reportedly already pumped billions of yuan into mainland equities under a government plan.

SHANGHAI—China will unleash more funds to stabilize its jittery share market, state media reported Monday after Shanghai stocks posted their biggest daily fall in more than eight years.

State-backed China Securities Finance Corporation (CSFC), which has reportedly already pumped billions of yuan into mainland equities under a government plan, will continue to buy stocks, Xinhua reported. 

The announcement was made to dispel "rumors that the national margin trading service provider has backed off from stabilizing the stock market," Xinhua said, citing a spokesman for the China Securities Regulatory Commission, Zhang Xiaojun. 

The securities regulator also said authorities would crack down on anyone who engages in "malicious shorting of stocks", in Beijing's latest attempt to stave off a full-blown market collapse.

Chinese shares slumped almost 8.5% on Monday, their biggest fall in a single session since February 2007, after weak economic data revived fears about the health of the world's second-largest economy. 

Investors were also unsettled by reports that the CSFC had started to return funds it borrowed from commercial banks to stabilize the stock market ahead of schedule, sparking fears that Beijing's commitment to the market may be flagging. 

"The rise during the past two to three weeks was too big, so the market needs to correct itself," Zhang Qi, an analyst from Haitong Securities, told AFP.

"There is also uncertainty about how the government support measures will exit the market," he said.

The Shanghai Composite Index closed down 345.35 points to 3,725.56 on turnover of 721.3 billion yuan ($117.9 billion), the biggest daily drop since February 2007.

The Shenzhen Composite Index, which tracks stocks on China's second exchange, slid 7% or 162.62 points, to 2,160.09 on turnover of 667.7 billion yuan.

'Investors Are Not Confident'

Chinese authorities have unleashed an unprecedented government rescue plan to prop up equities in recent weeks that has included a police crackdown on short-selling and a six-month ban on big shareholders selling stocks.

The moves had been credited with helping to end almost a month of heavy losses, which started mid-June when the security regulator said it would tighten rules on credit-fuelled margin trading.

CSFC has played a key role in stemming the rout by channeling funds from the central bank into equities, while the 21 largest brokerages also pledged to invest 120 billion yuan in so-called "blue chip" exchange traded funds (ETFs).

But investors have remained wary, and news that a closely watched private survey on China's manufacturing sector came in at its weakest level in more than a year sent many small investors rushing for the door on Monday. 

"The market already showed weakness on Friday, so when I saw the weak trading this morning I sold 95 percent of my holdings," Zhou Weiwei, who quit his job as an online merchant to trade stocks full-time, told AFP.

"I'll wait for a while until I enter the market again." 

On Monday, the government said that profits of major industrial firms slipped 0.3 percent year-on-year in June to 588.57 billion yuan.

That followed news Friday that a preliminary reading of Caixin's Purchasing Managers' Index (PMI) -- an independent survey of manufacturing activity -- came in at 48.2 for July, the weakest reading since 48.1 in April 2014.

The weak data further unsettled investors already nervous about the government's ability to manage China's financial system.

"Investors are not confident that the bull market will return any time soon," Jimmy Zuo, a trader at Guosen Securities, told Bloomberg. 

"People want to pocket profits after the benchmark index rose past the 4,000 mark."

Securities firms lost ground in Shanghai in Monday's rout. Industrial Securities plunged by its 10% daily limit to 10.38 yuan and Dongxing Securities also slumped 10% to 21.92 yuan.

Toll road-related shares also fell. In Shanghai, Hubei Chutian Expressway dropped by its 10% daily limit to 6.26 yuan, and Shandong Hi-speed lost 10% to 7.49 yuan.

Copyright Agence France-Presse, 2015

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