Halting IPOs and quadruple capital base, a busy weekend for Chinese government as they try to stabilize the volatile market

Written by || July 08 2015

The booming A-share market in China has attracted a lot of attention and capital over the past few months. Yet, the past few weeks have not been pretty as the market has fallen by over 40%. The government is pulling out all the stops to stop the decline.

Over the past weekend, the CSRC released a set of new rules to support the market including the reduction of transaction fees for both sellers and buyers by 30%, allowing brokerages to issue and transfer short-term corporate bonds and to offer asset-backed securitization service to calm the market and upheave confidence. An 'illegal market manipulation' investigation has started after a market slump of more than 20% in June. The A-share market fell below 4000 points which is a key point that the Chinese government expected to defend. And Margin lending and high leverage are the factors that the government think behind the A-share bull market.

The feedback of the market after various attempts being conducted by regulators to stabilize the market over the last few weeks seems unoptimistic. The index came from 4000 points to 3700. Over the last weekend, CSRC indicated they would freeze any new IPOs to lend support to the market instead of drying up liquidity in the market and threatening to push up interest rates. Aside from curbing the new IPOs, China Securities Finance Corp, China's official margin lender for brokerages, will boost its capital base to 100 billion yuan ($16.12 billion) from 24 billion yuan.

The large capital pool from various channels are believed to expand business and stabilize markets with good reasons. Let’s keep eyes on the market to see if the bull market has just gotten started, or has already run its course.