China's regulator moves to prop up market as shares still plunge

China’s stock market woes have deepened as the country’s securities regulator warned investors were in the grip of a “panic” and shares hit a three-month low.

The benchmark Shanghai Composite index plunged 5.9 per cent to 3,507.19 overnight with more than 500 companies across China’s two main stock markets having their shares suspended within minutes of trading opening.

The latest sell-off came despite Beijing, which is trying to breathe life into the country’s slowing economy, unveiling another package of measures to halt the slide and the People’s Bank of China (PBoC) and vowing to increase support to prop up shares. Chinese stocks have fallen by around 30 per cent since mid-June, after experiencing one of the biggest booms in the country’s history during the first half of the year.

China orchestrated brokerages and fund managers to promise to buy billions of dollars worth of stocks, helped by a state-backed margin finance company for which the central bank pledged to provide sufficient liquidity.

China’s Securities Finance Corporation said it would do this through measures including inter-bank lending, mortgage financing and floating financial bonds. It said it would purchase more shares of small and medium-sized listed companies, which have suffered the biggest losses.

Unlike other major stock markets, retail investors account for around 85 per cent of China’s trading.

Miranda Carr at Espirito Santo said: “The current battle between the Chinese government, which is attempting to support the market, and the highly leveraged, increasingly panicky retail investors is being won by the latter. This makes the next government move, such as a market stabilisation fund, crucial to whether we see a rebound or an all-out collapse.”

Last month the Chinese central bank cut interest rates and eased some banks’ reserve requirements in order to put a floor under the stock market’s rout. The authorities have also relaxed rules on margin lending and cut trading fees. This week they also confirmed that the pace of initial public offerings will be slowed to reduce the supply of new equity.

Jake Robbins, a fund manager, at Premier Asset Management, told The Independent: “The Chinese authorities are very keen to prop up the stock market, seeing it as a way to create wealth and help companies reduce high debt levels. Unfortunately, the economy has been slowing so companies earnings prospects have deteriorated.

“When the market starts to fall, those who have borrowed are put in a very difficult position and have to sell which can lead to a rapid fall… I think it is wishful thinking by the regulator that the decline is solely the fault of short selling, but more a reflection of an overvalued stock market that has been fuelled by debt and speculation.”