Govt moves to shore up market

Continuing plunge pushes Beijing to inject more liquidity

China's equities market has suffered the worst three-week loss since 1992 as the government keeps rolling out measures to stabilize a seemingly unstoppable slide.

The dramatic fall, wiping out $2.8 trillion in three weeks, further extended on Friday, with the benchmark Shanghai Composite Index dropping 5.7 percent, or 225.85 points, to close at 3,686.91.

To shore up the market, the China Securities Regulatory Commission told a news conference after the close on Friday that it will reduce the number of initial public offerings and the amount of funds to be raised to prevent new shares further draining liquidity.

The regulator also approved a capital injection of 76 billion yuan ($12.2 billion) into the China Securities Finance Co, a State-owned company specializing in providing margin loan services to brokerages, boosting its capitalization to 100 billion yuan and granting it greater capital power to stabilize the market.

The State Council on Friday approved the establishment of a 100 billion-yuan national insurance investment fund to invest in equities of listed and unlisted companies as well as bonds and equity funds.

Central Huijin Investment Ltd, an investment arm of the country's sovereign wealth fund, has boosted its holdings in exchange-traded funds that track the country's large blue-chip stocks, according to Chinese media reports, citing executives of fund companies.

The regulator also said that it will improve the rules to allow greater participation of overseas institutional investors under the Qualified Foreign Institutional Investor and renminbi-denominated QFII programs that have been granted an investment quota of about $300 billion.

The A-share market has been on a rollercoaster ride over the past six months. Highly leveraged margin trading, which allows investors to borrow money to trade stocks, prompted a 150-percent market rally that started last year, pushing the stock index to over 5,100 points. The rally was followed by a steep decline of 30 percent in the past three weeks, largely caused by the sudden deleveraging and forced liquidation of margin accounts.

"It is the first time that Chinese investors got a sense of how powerful and destructive the leveraged trading tool can be," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.

The market may gradually stabilize, but will be volatile in the coming weeks as it takes time for the mood to go from frenetic to rational, Dong added.

lixiang@chinadaily.com.cn