China’s market regulator claims stability is returning

The recent volatility on China’s stock market is almost over thanks to the sharp falls of recent weeks, according to the China Securities Regulatory Commission (CSRC).

The country’s securities regulator said that conditions have now stabilised and that the majority of market transactions are normal for the most part.

The benchmark Shanghai Composite Index rose by 154% from July 2014 to peak at 5,178 points on June 12, but has since fallen back to the levels of late last year. “Gains on the stock market had been too rapid and large, forming stock market bubbles, therefore subsequent plunges and adjustments were inevitable,” the CSRC announced.

Panic selling developed as the index fell back and high-leverage stock financing accelerated the plunge after fueling the previous surge, resulting in looming liquidity risks and even systemic financial risks, the regulator said. However, it claimed that efforts from the government to soothe the market helped stem potential systemic risks.

At present, market risks and bubbles have been released to some extent,” the CSRC said.

The regulator admitted that the stock market retreat since June exposed many problems, including insufficient regulation and supervision as well as excessive short-term speculations. The CSRC said that it will study the introduction of a stock index circuit breaker system, a point at which trading will be suspended for a period of time in response to substantial drops.

The regulator added China should ensure that the stock market serves the real economy, promotes the development of institutional investors and implements policies to encourage long-term investment. It should also learn from developed economies on how to improve the market’s structure.

The CSRC will combine the goal of market stabilisation with market repairing and construction, and strive to nurture a capital market featuring equitable, transparent, stable and healthy development,” the regulator announced.

The CSRC also pledged to continue cracking down on what it termed “violations in the stock market”, such as illegal financing, spreading rumours or manipulating the market.

Last week the CSRC fined three companies for alleged illegal stock financing activities, including Shanghai-based Mecrt Corporation, Hangzhou-based Hundsun Technologies and Hithink Flush Information Network Co.


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