China chides big shareholders

An investor takes notes as he watches a board showing stock prices at a brokerage office in Beijing.

Beijing freezes shareholders from selling following 30 percent plunge in last month

SHANGHAI — China’s securities regulator took the drastic step of ordering shareholders with stakes of more than five percent from selling shares for the next six months in a bid to halt a plunge in stock prices that has now knocked off more than 30 percent off the value of Chinese shares since mid-June, following a six percent drop yesterday.

For some global investors the fear that China’s market turmoil will destabilize the real economy is now a bigger risk than the crisis in Greece.

The China Securities Regulatory Commission (CSRC) said on its website late last night that it would deal severely with any shareholders who violated the rule.

Separately, major shareholders of top Chinese banks including ICBC and companies including Sinopec pledged to either maintain their holdings or increase their stakes in the listed companies.

The announcements came after China’s stock market showed signs of seizing up yesterday, as companies scrambled to escape the rout by having their shares suspended and the CSRC warned of “panic sentiment” gripping investors.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent yesterday, while the Shanghai Composite Index dropped 5.9 percent.

Worries reached the Obama administration, which said the stock market crash could get in the way of Beijing’s economic reform agenda.

“The concern, that is a real one, is what does it mean about long-term growth in China,” US Treasury Secretary Jack Lew said yesterday at an event in Washington on financial stability.

“How do Chinese policymakers respond to this, and what does it mean in terms of core conditions of the economy?”

Commodity markets reflected growing concern about the broader health of the world’s second largest economy, with copper prices falling to a six-year low, nickel futures sliding by their five percent daily limit, and Brent oil falling towards US$56 a barrel, near a three month-low.

Trading halts

More than 500 China-listed companies announced trading halts on the Shanghai and Shenzhen exchanges yesterday, taking total suspensions to about 1,300 — 45 percent of the market or roughly US$2.4 trillion worth of stock — as companies sought to sit out the carnage.

“I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities.

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures and the People’s Bank of China said it would step up support to brokerages enlisted to prop up shares.

China’s Finance Ministry and state investor Central Huijin Investment pledged not to reduce their shareholdings in the country’s Big Four banks — Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China and Bank of China.

Sinopec, Asia’s largest oil refiner, said in a filing yesterday that its controlling shareholder Sinopec Group had increased its stake in the listed company by buying 46 million shares in Shanghai, or 0.04 percent of the total issued share capital.

Nevertheless, world stock indexes fell overnight and the yen jumped against the dollar on concerns over China’s market mayhem and lingering worries over the future of Greece in the eurozone.

Challenge for Xi

The plunge in China’s previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China’s top leaders, who are already grappling with slowing growth.

Beijing’s interventionist response has also raised questions about its ability to enact market liberalization steps that are a centrepeice of its economic reform agenda.

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

The securities regulator said the Securities Finance Corp had provided 260 billion yuan (US$41.8 billion) to 21 brokerages, though that sum is only 40 percent of the amount of leveraged positions that investors have cut since June 18.

Herald with Reuters

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Director: Orlando Mario Vignatti - Edition No. 4543 - This publication is a property of NEFIR S.A. -RNPI Nº 5236549 - Issn 1852 - 9224 - Te. 4349-1500 - San Juan 141 , (C1063ACY) CABA