SHANGHAI: Chinese stocks tumbled again on Friday, taking the week’s losses to more than 10 per cent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.

After a slump of nearly 30pc in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at “clues of illegal manipulation across markets”.

After market close, a CSRC spokesman said China would cut initial public offerings and capital raisings and support long-term investors entering the market to help stabilise prices.

It also said China’s official margin lender for brokerages, which makes loans available for stock market investment, would boost its capital base to 100 billion yuan ($16bn) from 24bn yuan to expand its business.

A flurry of policy moves over the past week, including an interest rate cut and a relaxation of margin lending rules, had failed to arrest the sell-off.

The People’s Bank of China (PBOC) also rolled over 250bn yuan of medium-term loans to banks late on Friday to ensure adequate liquidity in the system.

“The government must rescue the market, not with empty words, but with real silver and gold,” said Fu Xuejun, strategist at Huarong Securities Co, before the CSRC and PBOC announcements, adding that a market crash would hurt banks, consumption, companies and even trigger social instability. “It’s a disaster. If it’s not, what is it?”

The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 5.4pc to close at 3,885.92, while the Shanghai Composite Index shed 5.8pc to 3,686.92 points. Hong Kong’s Hang Seng index fell 0.8pc to 26,064.11. For the week, the CSI300 lost 10.4pc and the SSEC fell 12.1pc.

The rout in China’s highly leveraged stock market has become a major worry for global investors, who fear a meltdown could destabilise the world’s second-largest economy at a time when growth is already slowing.

Chinese stocks had more than doubled between November and mid-June, fuelled largely by retail investors using borrowed money.

“This is happening against an (economic) growth backdrop that continues to look soft, as illustrated by the flat manufacturing survey this week,” noted analysts at Barclays. “With growth data still soft, China remains a key uncertainty for the global outlook.”

SHORT SELLERS TARGETED: The China Daily newspaper said on Friday that the CSRC was probing investors who used stock index futures to “short” the market — or bet on prices falling.

Sources with direct knowledge told Reuters that the China Financial Futures Exchange (CFFEX) had suspended 19 accounts from short-selling for a month.

After market close, CFFEX said it was introducing transaction fees on futures contracts on three indexes and strengthening the market to combat short-selling activities.

Published in Dawn, July 4th, 2015

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