In past years Chinese authorities are fighting with raising debt level and the requirement to move the economy form Government Driven Infrastructure Program to Consumer Spending. The government has to fight a poor and weak real estate market. Inadequate support measure by Chinese government resulted in the Chinese stock market crash & benchmark stock index dropped to lowest of three months. Shanghai Composite Index dropped by 5.9%to 3,507.19 on Wednesday the 9th , it was almost one third from its peak in June 12th. Even Government’s bonds to Hong Kong didn’t helped resulted in 5.8% Hang Seng Index loss. China’s bond and currency market were also affected severely.
The effect was global and resulted in US Index Futures & Fueling dropped. The attempt of the Chinese policy makers to stop selling which includes measures for propping small stock disappeared by Negative data showing unusual liquidation of margin trade. The foreign investors have stated withdrawing and it is believed that the government interference is making the situation worse.
At Shanghai Exchange almost 365 companies suspended trading making a percent of 33 of total listing and 992 in Shenzhen making a percent of 56.
Xi Jinping the President of China & his policy maker’s team are trying their best to fight the situation and maintain confidence in the leadership and prevent a crash. China has about 90 Million individual investors. The most recent support raised by government is that the Chinese Financial Futures Exchange raised margin requirements for shortening contracts on small caps CSI 500 Index. Chinese agency, China Securities Finance Corp. is planning to buy shares of more small and midcap companies. Another step is that the government will not cut holding of state owned companies.
The latest step is 6 months ban on sales of stock by Executives & Controlling shareholders owning 5 % of a company share.
The Bearing Market:
The biggest company of ChiNext Index of small caps stock, Leshi Internet Information & Technology (Beijing) was suspended after withdrawing 42% of shares highest of 2 months. The company further plans to invest in small terminal.
The CSI 300 Index of largest company of China falls to 6.8%. The Bear market also affected Hong Kong’s Hang Seng China Enterprises Index on Tuesday and slipped by 5.9%. The financial and energy companies slipped by almost 7% in CSI 300 even the biggest lender, Industrial & Commercial Bank of China Ltd., also dropped by 4.7%. China Construction Bank Corporation & PetroChina Company was also severely affected by the bearing market.
US Treasury Secretary Jacob Lew Expressed his concern and said on Wednesday, “The concern that I think is a real one is, what does it mean about long-term growth in China?”
One more sign of tension is that more than 1,300 Chinese companies stopped share trading in Shanghai & Shenzhen market to prevent any further loss.
The ruling Communist Party’s mouthpiece newspaper, The People’s Daily, says in an editorial earlier this week: “Rainbows always appear after rains.” So let us hope for the rainbow to shine soon for the Chinese market.