Chinese stock market rallies after Beijing imposes ban on sell-offs

Chinese stocks rallied on Thursday after the securities regulator banned shareholders with large stakes in listed firms from selling, in Beijing’s most drastic step yet to stem a sell-off that has roiled global financial markets.

As the daily drumbeat of official announcements aimed at propping up the sinking equity market continued, state news agency Xinhua said police would investigate “malicious” short-selling of stocks, and the banking regulator said it would allow lenders to roll over loans backed by stocks.

In what was at least a temporary reprieve, the CSI300 index of the largest listed companies in Shanghai and Shenzhen jumped 5.8 per cent in morning trading, while the Shanghai Composite Index gained 5.3 per cent. Both had tumbled around 6 to 7 per cent on Wednesday. More than 30 per cent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China’s market turmoil will destabilise the financial system is now a bigger risk than the crisis in Greece.

"We are inclined to believe that Beijing will escalate policy responses until they start working," said economists at Credit Suisse in a research note.

“If market conditions do not stabilize, we expect a statement of ‘whatever it takes’ from the Chinese government, given that social stability is at stake and financial systemic risks are evident.”

The United States has voiced worries the stock market crash could get in the way of Beijing’s economic reform agenda.

The plunge in China’s previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China’s top leaders, who are already grappling with slowing growth.

Beijing, which had made handing a larger role to market forces a centrepiece of its economic reforms, has responded with a battery of measures to support the stock market, including an interest rate cut, suspension of initial public offerings and enlisting brokerages to buy stocks, backed by cash from the central bank.

Reuters