China to supply central bank liquidity into the stock market and bans share selling by big share holders

China has come out with extraordinary and extreme measures to stop the crash in the equity market. Two new measures that were rare in use were to be deployed to prevent what the Chinese authorities describe as the irrational drop in share prices.  

The first one–large shareholders are not allowed to sell shares of listed companies. Investors who holds more than 5% share in listed companies are banned from selling those shares for the next six months.

Second, in a rare step, the central bank will provide liquidity to support the market.

Chinese stocks continued their free fall as the Shanghai Composite Index closed down 5.9 per cent after falling as much as 8 per cent at the beginning of trade.

Today’s fall is even after blocking trade in the nearly 50% of the listed companies’ share in the market. Besides, the China Securities Finance Corporation was active to provide with buy support.

But panic selling continued and authorities were forced to come out with some extraordinary measures towards the end of the day.

Chinese stocks have registered nearly 110% increase in eight months till mid June this year. The same market has witnessed a crash of nearly 35% in the last few weeks.

Regulators were blaming liquidity strain for producing the havoc in the market. But the huge appreciation in the equity market was a hidden burst element itself.

Sudden rise in equities were unmatched by growth projections as macro data estimate shown that Chinese growth is going to be below seven percent in a rare below par performance in many decades.

China’s market regulator – China Securities Regulatory Commission has noted poor liquidity and panic selling for the crisis.  “There is a mood of panic in the market and a large increase in the irrational dumping of shares, causing a strain of liquidity.”, noted the CSRC.

Historically, the Chinese stock market remained strong among the emerging market equity markets.

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Tags : china stock market crash