China Takes tough Steps to Halt Market Crash

China’s benchmark stock indices – the Shanghai Composite and the Shenzhen 300 – bounced back on Thursday, after the country’s market regulator unveiled draconian measures to stem the freefall in equities. The two indices have crashed over 30 per cent since mid-June, wiping out $4 trillion in market capitalization; trading in nearly half of 2,800 listed companies has been halted so far. The Hang Seng, Hong Kong’s benchmark where many Chinese firms are listed, also traded 3 per cent higher.

In its most drastic step yet, China banned shareholders with large stakes in listed firms from selling shares. Holders of more than 5 per cent of a company’s stock would be barred from selling for the next six months, China’s state regulator said.

The prohibition will also apply to foreign investors with stakes in Shanghai- or Shenzhen-listed companies. China’s police have opened investigations to check short-selling of Chinese shares, state news agency Xinhua said. Short selling is the practice of selling shares that are not owned by investors. When prices fall further, investors buy these shares back to make profits.

China’s banking regulator said it would allow lenders to roll over loans backed by stocks. Major shareholders of top Chinese banks said they will either maintain their holdings or increase their stakes in the companies to check the rout in prices.

The latest steps come after earlier announcements failed to check the slide in Chinese stocks. China has previously cut interest rates and suspended initial public offerings in a bid to halt the meltdown in stock markets. The government has also enlisted brokerages and fund managers to buy billions of dollars’ worth of stocks to provide sufficient liquidity to stock markets.

Analysts fear that China’s market turmoil will destabilise the global financial system; the crash in Chinese share markets is seen as a bigger risk than the crisis in Greece. The crash in Chinese markets has impacted commodities that are sensitive to the outlook for the world’s second biggest economy have been hit, with copper prices touching a six-year low on Wednesday and iron ore tumbling to a 10-year low. The slump in commodities has hit many Indian companies too.

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Source:Ndtv