The central government, securities regulator and financial institutions have launched a joint effort to support the country’s plummeting stock market amid fears that a market crash could threaten the country’s entire financial system.
The State Council ordered the suspension of new share offerings over the weekend to release locked-up capital to the market. But reviews of new IPO applications will not stop, according to a spokesman for the China Securities Regulatory Commission. The number of new IPOs and the amount of funds to be raised will be drastically reduced, he added.
The People’s Bank of China will offer liquidity support in various forms to China Securities Finance Corp, a State-owned company specializing in providing margin loan services to brokerages, to help stabilize the stock market, according to a statement issued by the regulator on July 5.
Central Huijin Investment said it has invested in exchange-traded funds that track major stock indexes and will continue this operation.
Twenty-eight companies that had gained IPO approval from the regulator will postpone their fundraising due to the current market fluctuations, according to statements from the Shanghai and Shenzhen stock exchanges.
The country’s top 21 securities brokerages have pledged to collectively invest 120 billion yuan ($19.3 billion) in exchange-traded funds that track large blue chip stocks.
The firms said they will not sell their holdings as long as the benchmark Shanghai Composite Index is below 4,500 points, while major shareholders said they will buy more shares. The index closed at 3,686.91 on July 3.
The A-share market has been in a free-fall over the past three weeks, with the composite index posting its biggest three-week loss since the stock market opened in 1992.
The Shanghai gauge has slumped by nearly 30 percent, or 1,500 points, since mid-June, wiping out about $2.8 trillion in market value. The average loss of individual stock accounts has been around 420,000 yuan, according to media estimates.
The A-share market had witnessed a wild rally of 150 percent in the past year until June 12, propelled by highly leveraged margin trading that allows investors to borrow money to purchase stocks. Valuations of some listed startup companies reached as high as 150 times at the peak, similar to valuations seen in the Nasdaq market before the dot-com crash of 2000.
The regulator’s crackdown on illegal leveraged trading in May triggered a massive deleveraging that led to a steep fall in stock prices and the forced clearing of stock accounts that failed to meet the margin call.