China’s securities regulator has announced a complete suspension of the lending of restricted shares starting from Monday, as part of efforts to stabilize the country’s volatile stock markets following recent sharp declines.
Despite a series of supportive policies implemented by Beijing, including a significant reduction in bank reserves, Chinese stocks had briefly rebounded from a five-year low earlier last week but subsequently retreated on Friday.
This decline reflects the deep pessimism among investors regarding the market’s outlook and the overall instability of the Chinese economy.
Experts and investors have been urging Beijing to introduce additional support measures to restore confidence among consumers and businesses, thus establishing a more solid foundation for economic activity.
Restricted shares, typically allocated to company employees or investors with specific sale limitations, can be lent to others for trading purposes, including short-selling, which can exacerbate market pressures during extended downturns.
In a statement published on its official WeChat account, the China Securities Regulatory Commission (CSRC) emphasized that Sunday’s decision aims to promote fairness and reasonableness in the market.
It will reduce the efficiency of securities lending, limiting the advantages that institutions gain through information and tools, allowing all types of investors more time to analyze market information and fostering a fairer market order.
The CSRC also expressed its determination to crackdown on illegal activities that exploit securities lending to reduce holdings and cash out.
Additionally, the CSRC has announced plans to restrict the efficiency of certain securities lending activities in the securities refinancing market, effective from March 18.
In October of the previous year, the CSRC had already imposed restrictions on securities lending businesses and increased scrutiny on improper regulatory arbitrage by imposing higher margin requirements.
Despite some recovery, China’s stock market witnessed a significant decline in 2023 and continued to slide into the new year, with the CSI300 Index down approximately 3% year-to-date.
Small Chinese investors have been eager to exit the struggling stock markets, driving up premiums on global index funds as they seek exposure to alternatives to the unstable domestic economy.
China’s economic growth in 2023 was 5.2%, slightly surpassing the government’s target, but this comparison was influenced by the impact of the pandemic in 2022, resulting in an uneven recovery.
Recent data has indicated lackluster consumption and the most substantial decline in home prices in nine years, with the property market facing significant challenges.
Both the Shanghai and Shenzhen stock exchanges have announced the suspension of securities lending by strategic investors during lockup periods, effective January 29th.