China’s government has to resort to extreme measures to prop up the domestic equity market. However, experts warn that such unprecedented efforts are threatening to cause a new bubble.
On Thursday morning, China’s banking regulator said it would allow lenders to ease margin requirements for some wealth management clients, and encouraged banks to offer financing to companies seeking to buy their own shares. Indeed, it will greatly simplify a procedure of giving loans to issuers. It is especially important against the background of a slump in equities which affected lien terms. Beijing is certain that such a step will prevent further panic sell-offs of equities. China’s regulator withdrew 1,400 issuers from trading. As a result, more than half of the companies listed on China’s two stock exchanges suspended their stocks. In addition, The China Securities Regulatory Commission imposed a new rule banning majority stake holders from selling equities for 6 months. The restriction also applies to senior executives and board members of listed companies. In parallel, the regulator barred investors with shareholdings of more than 5% in a company from selling shares. In light of the recent turbulence, China’s policymakers have made public their desire to let markets play a bigger role in the Chinese economy, which is still dominated by state-owned enterprises and banks.
