China tells companies, executives to buy stocks, promises credit in bid to halt price slide

China announced a flurry of new moves Wednesday to halt a stock market slide. The result? Another big dive in share prices.

BEIJING — China announced a flurry of new moves Wednesday to halt a stock market slide. The result? Another big dive in share prices.

The government told state companies and executives to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading.

Hundreds of companies have halted trading in their stock after emergency measures announced last weekend failed to stop a rout that has dragged down the benchmark Shanghai Composite Index by more than 30 per cent since early June.

The Shanghai index lost another 5.9 per cent on Wednesday despite the new measures and Hong Kong’s Hang Seng index closed down 5.8 per cent after diving as much as 8.5 per cent earlier in the day.

Greece’s debt crisis has unsettled Asian stock markets but the losses in China are driven entirely by internal factors. Beijing fostered a market boom over the past year, but with Chinese economic growth slowing, it had little basis in reality. Prices began collapsing after unrelated changes in banking regulations made investors in the rumour-fueled market suspect the government could withdraw its support. Regulators also tightened lending to stock investors, adding to their fears.

The decline in Chinese stock prices threatens to fuel political tensions and set back Communist Party plans to use financial markets to make China’s state-dominated economy more productive. The party wants to encourage stock ownership but small investors whose holdings have plunged in value say they will no longer buy shares.

Little more than a month ago, China’s stock market was the best performing in the world. The boom began after state media said last year stocks were cheap, which led investors to believe Beijing would prevent prices from falling. The Shanghai index still is up 70 per cent from one year ago but novice investors who piled in just before the peak hold shares that are worth less than they paid.

Financial literacy is limited in a society where the mainland’s first communist-era stock exchange opened in Shanghai only in 1990. Brokerages offer classes in trading but a culture of commentators who preach the gospel of low-risk, long-term investing has yet to develop. Many small investors rely on rumours or tips from friends in a market rife with complaints of insider trading and fraud.

“The central government made considerable reputational investment in the rally over the last year, particularly via ample cheerleading from state media,” said IHS Global Insight economist Brian Jackson in a report. Official support “is likely to remain extraordinary,” he said, but it will be hard to revive flagging investor enthusiasm.

On Wednesday, the Cabinet agency that oversees China’s biggest state-owned companies said it had told them to avoid selling shares and to buy more “in order to safeguard market stability.”

In a separate order, the securities regulator told directors, executives and senior managers of publicly traded companies who have sold shares in those companies within the past six months to buy them back and said they are barred from selling. It said they are required to buy more if the price falls by more than 30 per cent in the next 10 days.

The insurance regulator said the proportion of their assets Chinese insurers are allowed to invest in stocks will be increased to 40 per cent from 30 per cent. The amount of a single blue-chip company’s shares that an insurance company can buy will increase to 10 per cent from 5 per cent.

The central bank said it will provide “ample liquidity to support stock market stability” through a state-owned company that lends to brokerages to finance share purchases, a practice known as margin lending. The People’s Bank of China statement was read on state TV’s national midday news.

Chinese authorities have tried to reassure investors the decline is normal following the boom that saw the Shanghai index soar by more than 150 per cent beginning in late 2014. The flagship ruling party newspaper, People’s Daily, said Monday the economy can maintain steady growth and provide “solid fundamentals” for “healthy development of capital markets.”

Jackson, of IHS Global Insight, noted a survey by the Southwestern University of Finance found 8.8 per cent of households participated in the stock market in the second quarter of this year, up from 6.1 per cent in the first quarter. According to the newspaper China Business News, the latest percentage is the equivalent of 37 million households.

“That confirms that a substantial number of households rushed in just as valuations were peaking, but also that the total exposure of private households in China is relatively low compared to Western countries, where often a third or more participate in equity markets,” said Jackson.

Also Wednesday, a group of 21 state-owned brokerages that pledged last weekend to buy blue chip stocks — or shares in major state companies — said they will increase the size of a fund to finance that from 120 billion yuan ($19 billion) to 260 billion yuan ($42 billion).

The pledge helped to boost shares in major banks and other government companies such as PetroChina Ltd., Asia’s biggest oil and gas producer. Their prices rose by up to 10 per cent on Monday and Tuesday, but shares in smaller companies that are not included in the pledge have fallen.

A state company that provides credit to brokerages said it had injected a total of 200 billion yuan ($32 billion) into five mutual funds to buy shares. It said that would help to support prices of smaller companies because those funds can buy any shares, not just blue chips.

Some 787 companies suspended trading on the exchanges in Shanghai and the southern city of Shenzhen by the end of trading Tuesday, according to China Business News. It said more requested a suspension later, raising the total to more than 1,000 — the equivalent of almost 36 per cent of the total of 2,802 companies traded in Shanghai and Shenzhen.

Hong Kong shares in which trading was suspended included Sinopec, China’s No. 2 state-owned oil company.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Friday, Alberta Health Minister Tyler Shandro announced the province’s plan to reduce surgical wait times over the next two years. (Photo by Paul Taillon/Office of the Premier)
Alberta provides more funding to reduce surgery wait times

The province is working to provide better access to surgeries over the… Continue reading

RDC Queens volleyball players Sydney Rix and Emma Holmes gave blood as part of the Bleed Green Challenge, in partnership with Canadian Blood Services. (Photo courtesy RDC Queens Instagram)
Blood donation: RDC Athletics give back with Bleed Green Challenge

In what has been a challenging year for everyone across Alberta, Red… Continue reading

Eastview Middle School’s Jeremy Spink was selected as the 2020/21 NHL/NHLPA Most Valuable Teacher for February (Photo Courtesy of Red Deer Public Schools)
Red Deer teacher earns NHL’s Most Valuable Teacher Award for February

Eastview Middle School’s Jeremey Spink picked up the honour

Silent protests are being held this week in response to Red Deer Public Schools rejecting a Pride Week in favour of a Diversity Week last month. (Photo courtesy Black and Indigenous Alliance Facebook)
Central Albertans protest Red Deer Public Schools’ Pride Week decision

Central Albertans are silently protesting Red Deer Public Schools’ decision to not… Continue reading

Seniors in the 65-unit Piper Creek Lodge are among those waiting for COVID-19 vaccinations. (File photo by Advocate staff)
Central Alberta senior lodges anxiously waiting for COVID-19 vaccinations

“Should be at the front of the line, not the back of the line”

Bryson, six, and Mara, eight, play with puppies from Dogs With Wings Saturday. (Photo by Sean McIntosh/Advocate staff)
WATCH: Dogs With Wings introduces Red Deer program

A program that trains puppies to be certified service, autism, facility and… Continue reading

A flare stack lights the sky from the Imperial Oil refinery in Edmonton on December 28, 2018. The federal government is unveiling proposed regulations for its greenhouse gas offset program that will govern how developers can register and sell credits earned through projects that reduce emissions. THE CANADIAN PRESS/Jason Franson
Proposed federal carbon offset credit regulations raise farmer advocate’s concern

CALGARY — Projects that qualify to sell federal greenhouse gas emission credits… Continue reading

The National War Memorial honouring Canadians who served in the military is shown in Ottawa on Sunday, March 31, 2019. A member of the Canadian Armed Forces has died in Afghanistan. THE CANADIAN PRESS/Justin Tang
Canadian soldier found dead in his quarters in Afghanistan: military

OTTAWA — A member of the Canadian Armed Forces has died in… Continue reading

A flare stack lights the sky from the Imperial Oil refinery in Edmonton on December 28, 2018. The federal government is unveiling proposed regulations for its greenhouse gas offset program that will govern how developers can register and sell credits earned through projects that reduce emissions. THE CANADIAN PRESS/Jason Franson
Ottawa unveils proposed federal carbon offset emission credit regulations

CALGARY — The federal government is unveiling proposed regulations for its greenhouse… Continue reading

Prime Minister Justin Trudeau holds a press conference in Ottawa Friday, March 5, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Trudeau holds firm on premiers’ health-care funding demands, COVID-19 aid comes first

OTTAWA — Prime Minister Justin Trudeau says the federal government will keep… Continue reading

Supporters pray outside court in Stony Plain, Alta., on Wednesday, Feb. 24, 2021, as a trial date was set for Pastor James Coates of GraceLife Church. He is charged with holding Sunday services in violation of Alberta's COVID-19 rules and with breaking conditions of his bail release. THE CANADIAN PRESS/Jason Franson
Judge rules Alberta pastor accused of violating health orders to remain in jail

EDMONTON — A judge has ruled that an Alberta pastor will remain… Continue reading

Image courtesy Creative Outlet
Man found guilty in attack that left Winnipeg teen with hammer in head

WINNIPEG — A Winnipeg judge has found a man guilty in an… Continue reading

Pictured here is Stettler’s Jenner Smith with a guide dog from Aspen Service Dogs. An online auction will be running soon to help raise funds for Jenner to receive his very own service dog later this year. Jenner, who is four years old, was diagnosed with Autism Spectrum Disorder in 2019. photo submitted
An online auction is planned to raise funds for a service dog for a Stettler family

Jenner Smith, four, was diagnosed with Autism Spectrum Disorder in 2019

Team Canada third John Morris follows as second Carter Rycroft (right) and lead Nolan Thiessen (left) sweep his rock during round robin competition against Team Newfoundland and Labrador at the Brier curling championship, Wednesday, March 9, 2016 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Champions at The Brier list

Brier champions since the inception of the Canadian men’s curling championship in… Continue reading

Most Read