China bans stock sales by major shareholders

China’s securities regulator has banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, in a bid to stop a $3.5 trillion rout in the nation’s equity market.

Investors with stakes exceeding 5 per cent must maintain their positions, the China Securities Regulatory Commission (CSRC) said in a statement.

The rule is intended to guard capital-market stability amid an “unreasonable plunge” in share prices, the CSRC said.

While China has already ordered government-owned institutions to maintain or boost their stock holdings, the CSRC’s directive expands the ban on sales to non-state companies and potentially foreign investors who own major stakes in mainland businesses.

China has unveiled new market-boosting measures almost every night over the past 10 days, steps that have so far failed to revive investor confidence.

Foreign traders have been selling Chinese shares at a record pace this week in part due concerns over the government’s meddling in markets.

The Shanghai Composite Index slid 5.9 per cent on Wednesday as official attempts to stop the selling, including measures to prop up small-cap stocks, were overshadowed by data showing an unprecedented liquidation of margin trades on Tuesday.

Chinese authorities have also suspended initial public offerings, restricted bearish bets via stock-index futures and encouraged financial firms to buy shares. In perhaps the most dramatic effort to prevent investors from selling, local exchanges have allowed at least 1,331 companies to halt trading in their shares.

As the Shanghai Composite’s record-breaking boom goes bust, President Xi Jinping’s government is deploying the heavy hand of the state in an attempt to prevent falling stock prices from eroding confidence in his leadership.

The moves have cast doubt on the ruling Communist Party’s pledge less than two years ago to give market forces a bigger role in the economy, part of its largest reform drive since the 1990s.

Bloomberg