SHANGHAI • China's securities regulator relaxed rules on using borrowed money to speculate on stock markets, the latest in a flurry of government measures aimed at stemming two weeks of panic selling that is posing a growing risk to the world's second- largest economy.
But the move failed to revive confidence yesterday, as the Shanghai Composite Index fell below the 4,000 level for the first time since April, with margin traders continuing to unwind positions amid doubts over the effectiveness of the measures to support equities.
Just a few weeks ago, the authorities were cracking down on riskier margin financing, which had helped Chinese markets more than double in a year. But a more than 20 per cent plunge in share prices in two weeks has seen an abrupt shift as the government works to avert a crash in the world's most volatile stock market.
The China Securities Regulatory Commission (CSRC) said late on Wednesday it would cancel a rule requiring investors to make additional guarantees if their margin ratio reaches 130 per cent or else face forced liquidation of their shares.
The regulator said brokerages will also be allowed to roll over margin trading contracts with clients. Brokerages whose margin trading volumes were currently above permitted levels could maintain current levels but further increases are disallowed, it said.
Four thousand is the psychologically critical level that should not have been broken. The government will have to, and need to, come up with more measures, otherwise the market is poised to drop further.
MR CASTOR PANG, head of research at Core Pacific Yamaichi in Hong Kong, on the need to avert a crash in the world's most volatile stock market
But a drop below 4,000 is a blow to investors who speculated that the authorities would intervene to support shares, a strategy employed near closely watched levels in the past. The Shanghai Composite Index fell 3.48 per cent, or 140.93 points, to 3,912.77 on a turnover of 736 billion yuan (S$161 billion). The Shenzhen Composite Index, which tracks stocks on China's second exchange, plummeted 5.55 per cent, or 130.32 points, to 2,215.81 on a turnover of 552.3 billion yuan.
"Four thousand is the psychologically critical level that should not have been broken," said the head of research at Core Pacific Yamaichi in Hong Kong, Mr Castor Pang.
"The government will have to, and need to, come up with more measures, otherwise the market is poised to drop further."
In a separate statement reported by Xinhua news agency, the CSRC also said it would allow stock brokerages to issue or transfer short-term corporate bonds via stock exchanges and trading systems between institutions to widen their funding channels.
The sudden market slide was likely a contributing factor to the central bank's decision to cut interest rates last weekend for the fourth time since November.
Other measures this week have included rules to allow state pension funds to purchase stocks. China's two major stock exchanges said on Wednesday they plan to lower securities transaction fees by 30 per cent from next month.
But fears of a deeper plunge and uncertainty over policy have fuelled wild volatility, with prices at times swinging in a 10 per cent range in a single day as many traders desperately try to unload their positions while others, possibly state-linked, swoop in to buy cheaper stocks, believing Beijing will not allow a market crash to threaten the already slowing economy.