BEIJING – China has frozen new share listings and announced it will set up a fund to stabilise its nose-diving sharemarkets in the latest raft of urgent moves indicating the growing concern over the potential for the country's stock panic to spread and threaten the world's second-largest economy.
Official news agency Xinhua reported late on Saturday that 28 companies had agreed to withdraw their initial public offerings (IPOs) despite having already gained approval from Shanghai and Shenzhen trading authorities.
That came just hours after a statement from the Securities of Association of China announcing 21 of the country's largest brokerages had agreed to pledge the equivalent of 15 per cent of their net assets – or no less than 120 billion yuan in total – to invest in blue-chip investment stocks.
The group of 21 brokers said the economic fundamentals that had justified the stock market's rally before the rout hadn't changed.
"It is therefore our duty to unite in stabilising this market," the statement said.
But the plunge in Chinese equities over the past three weeks have reached close to $3 trillion in market value, about 10 times Greece's gross domestic product last year – and nearly double Australia's.
As a result, China's central bank, the People's Bank of China, is expected to provide financing to the stabilisation fund either directly or indirectly through the country's giant sovereign-wealth fund, the Wall Street Journal reported, citing unnamed sources.
"This 120 billion won't last for an hour in this market," said Bocom International Holdings equity strategist Hao Hong. "It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue."
Saturday's dramatic announcements were made after an extraordinary meeting was held by members of the State Council, China's top decision-making body, the People's Bank and the country's securities regulator and other financial agencies.
The benchmark Shanghai Composite Index has plunged by more than a quarter since a high set on June 12, with much of the losses suffered by retail investors, many who entered the market in recent months, keen on riding what had been a remarkable bull run that has sustained for much of the past year.
The Securities Association also said brokerages had pledged not to sell shares in their own proprietary trading accounts as long as the Shanghai index remained below 4500 points, some 22 per cent above Friday's close of 3686.92.
Saturday's measures add to a raft of almost daily announcements designed to prop up confidence in the market and dispel rumours of market manipulation and short-selling.
But previous steps, including an interest rate cut the previous week and bullish state media editorials, have failed to stem the losses with many leveraged investors forced to unwind their margin trades as stocks entered free-fall.
Analysts suggest total margin lending, both formal and informal, could add up to around 4 trillion yuan.
China has suspended new share listings before, having done so in 2012 ahead of the major Communist Party leadership transition which saw President Xi Jinping take power. The move is seen to help stabilise markets by stopping investors selling stocks to buy new ones.
Meanwhile, the World Bank was forced to deny accusations that it had bowed to Chinese pressure and censored itself by removing a contentious chapter on the country's financial system from a report on China's economy.
The original chapter warned "the poor performance of the financial system" had confirmed previous assessments that the system was "unbalanced, repressed, costly to maintain and potentially unstable".
It also highlighted "risks stemming from wasteful investment, over-indebtedness and a weakly regulated shadow-banking system".
Bert Hofman, the World Bank's country director for China, told the Financial Times the bank had held discussions with Chinese officials over the chapter, but denied the decision to withdraw it had been the result of pressure from Chinese authorities.
"What came out did not meet our usual standards of discourse with our member governments," said Mr Hofman. "It was our decision."
With Bloomberg
