China’s Securities Regulator Implements Measures to Control Short-Selling Amid Stock Market Rout

Hong Kong – China’s top securities regulator has implemented measures to address the ongoing stock market downturn that started in 2021 and has resulted in losses worth trillions of dollars. The China Securities Regulatory Commission (CSRC) announced on Sunday that it would fully suspend the lending of restricted shares on mainland Chinese stock exchanges. These restricted shares are held by company employees or strategic investors and are not allowed to be traded in the stock market for a certain period, but can still be borrowed and lent for short-selling.

Short-selling is a practice where investors borrow shares from a broker, sell them quickly, and hope to buy them back later at a lower price before returning the shares. In addition to suspending the lending of restricted shares, the CSRC has also instructed securities financing firms to wait one day before providing borrowed shares to brokerages for lending to short-sellers. Previously, these shares could be immediately made available to brokerage firms.

This latest effort by Chinese authorities to contain the stock market rout follows earlier restrictions on short-selling enacted in October. However, analysts remain skeptical about the effectiveness of these measures. Ken Cheung, the chief Asian foreign exchange strategist for Mizuho Bank in Hong Kong, noted that the mainland Chinese markets had a muted response to the policy change.

The impact of the new curbs can already be seen in the performance of Chinese stock markets. On Monday, while the Shanghai Composite Index rose by 0.3%, the Shenzhen Component Index fell by 1.6%. Investor sentiment has also been affected by a Hong Kong court order for Evergrande, a prominent company tied to China’s property crisis, to liquidate its assets.

While some calm has returned to the markets, challenges still persist. Over the past week, Chinese authorities have made a series of interventions and announcements to address the stock market downturn. Key market indexes experienced substantial losses, although the Hang Seng Index rebounded by 4.2% and the Shanghai Shenzhen CSI300 recorded a 2% weekly gain.

Chinese officials have taken various unprecedented steps to stabilize the markets. They have considered ordering state-owned enterprises to use offshore accounts to buy shares worth billions of dollars. Regulators have also mentioned evaluating the performance of heads of state-owned companies based on their stock market value. Additionally, efforts have been made to open up China’s financial industry to international investors, with the National Administration of Financial Regulation vowing to achieve this goal.

The People’s Bank of China has also taken action by slashing the amount of cash banks are required to hold as reserves, which could inject billions of dollars of liquidity into the economy. Despite these efforts, analysts and investors remain cautious as the effects of the stock market rout continue to linger.

The implementation of these measures by the China Securities Regulatory Commission underscores the government’s determination to stabilize the market and protect investors. However, the success of these actions remains uncertain as the long-term impact of the stock market downturn continues to shape China’s financial landscape.