China Urges Investor Calm While Stopping Short of Market Rescue

(Bloomberg) -- China’s top financial officials moved to shore up confidence in the country’s tumbling stock market, marshaling a rare show of coordinated verbal support as the government tries to prevent the deepest equity sell-off since 2015 from infecting the world’s second-largest economy.

The statements from heads of China’s central bank, securities watchdog and banking and insurance regulator -- which promised measures to ease financial pressure on companies -- underscored the growing sense of investor panic after the country’s $3 trillion stock rout accelerated this week and the yuan slid to an almost two-year low. The calls for calm came just hours before Chinese data showed a deeper-than-estimated economic slowdown, and a day after Donald Trump took new steps to escalate a trade war with Beijing.

Chinese shares have tumbled at the fastest pace worldwide this year as concerns about trade tensions and weak economic growth combined with fears of forced selling by investors who pledged more than $600 billion of shares as collateral for loans.

The rout has left China’s ruling Communist Party with few good choices. If authorities intervene to bail out investors like they did in 2015, it might stop the short-term bleeding but undermine efforts to reduce moral hazard and deleverage an economy saddled with record levels of debt. Doing nothing could jeopardize financial stability and weaken Beijing’s hand as it tries to end trade tensions with Washington.

So far Xi Jinping’s government appears to be taking a middle road, voicing support for the market while stopping short of direct intervention. While the Shanghai Composite Index rallied more than 2 percent on Friday, some investors worry the strategy may not be enough to restore investor confidence.

“This kind of pep talk will have little short-term boost to the market,” said Liu Wu, an analyst at China Development Bank Securities.

Read more: China Measures to Support Markets Are Insufficient, Analysts Say

People’s Bank of China Governor Yi Gang said in a statement on the central bank’s website that the recent stock-market turmoil was caused by investor sentiment. The PBOC is studying measures to ease company’s financing difficulties and will also use monetary policy tools to support banks’ credit expansion.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said in an interview posted on the regulator’s website that recent “abnormal fluctuations” in markets don’t reflect the country’s economic fundamentals and “stable financial system.” Liu Shiyu, head of the China Securities Regulatory Commission, said his agency encouraged local government-backed funds to help ease pressures created by share-pledge risks.

Here’s What Top Regulators Said on Friday

Guo also said that China will allow insurance companies to introduce products designed to ease liquidity risks caused by share pledging of listed companies. Liu revealed a number of measures in a statement on the CSRC’s website, including encouraging private equity funds to take part in company restructurings, enhancing share buyback mechanisms and exploring ways to help private companies to issue bonds.

“The comments are mostly addressing problems in the mid-to-long term,” said Nie Wen, an economist at Huabao Trust. “The regulators don’t want to encourage expectations that the national team will always save the day. But from the circumstances now, that may be the only remedy.”

To contact Bloomberg News staff for this story: Lucille Liu in Hong Kong at xliu621@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

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With assistance from Editorial Board