China’s central bank will provide an injection of cash for the state-run margin finance company, as the country’s top brokerages pledge to go on a share-buying spree to prop up faltering markets that have lost a third of their value in less than a month.
Some analysts estimate the total margin-lending in the world’s second-largest economy is $645 billion. As The Guardian noted last week, the falling share prices have triggered margin calls. “Investors and policymakers are looking on with fear because if those margin calls continue, investors will have to offload other assets to come up with the cash they need,” the newspaper writes.
Although the People’s Bank of China — the country’s central bank — has lowered interest rates, that has done little to stanch the bleeding. The sudden sell-off, which started in mid-June, followed a seven-month period that saw Chinese share prices double.
So far, 69 Chinese mutual funds have said that they will invest to stabilize the stock market, according to Reuters.
The news agency writes that “almost $3 trillion in market value — more than the entire economic output of Brazil — has been wiped out since markets went into reverse last month, posing a bigger headache for many global investors than even the Greek debt crisis.” It notes that the 30 percent drop on the main Shanghai Stock Exchange Composite Index, or SHCOMP, was “especially worrying because the bull market had been built on a mountain of speculative loans.”
The Hong Kong-based daily South China Morning Post says it is “sparking a crisis of confidence among investors who now believe the downward spiral will last some time.”
The Wall Street Journal reported on Saturday that:
“Senior officials from the State Council, China’s cabinet, the central bank, its top securities regulatory agency and other financial agencies held a meeting Saturday to discuss another round of measures to help arrest the stock slide, according to people with knowledge of the matter. …
“Chief among the decisions made is to halt new initial public offerings in a bid to preserve liquidity in an increasingly volatile market, the people said. Officials also discussed the setup of a market-stabilization fund.”
As NPR’s Frank Langfitt reported in 2013, the central bank has been keen to rein in rampant and risky lending, which is fueled largely by a real estate bubble and speculation in tech stocks.
Meanwhile, the country’s rate of economic growth, while still robust by Western standards, has fallen to its lowest pace in a quarter century.