China Stocks Slide Despite Calming Words from Policymakers

Promises of financial market reforms and assurances that the economy is stabilising do little to stem the rout

After an initial rally, stocks ended the session lower on Monday. (Photo: Reuters)

No Respite In Sight

• CSI index closes down 3.4%, Shanghai Composite down 2.5%
• Securities regulator considering circuit breaker for stock indices
• Central bank governor says market correction almost done
• China revised down its reading for GDP growth to 7.3% in 2014, from 7.4% earlier

Attempts by Chinese policymakers and regulators to soothe the country’s jittery markets with promises of financial market reforms and assurances the economy is stabilising had limited impact on Monday, with stocks tumbling in late trade.

Looking to draw a line under wild gyrations in Chinese equity markets, which have fallen 40% since mid-June, China’s securities regulator said it would take more steps to ensure stable markets, while government officials said the worst of the volatility was over.

The government won’t normally intervene, but when there are severe, abnormal fluctuations in the markets, the government can’t just sit on the sidelines and must take decisive and timely measures.
— China Securities Regulatory Commission

It added it would consider launching a circuit breaker system for the country’s stock indexes, to halt trading if there are particularly wild price moves.

But after an initial rally, stocks headed lower on Monday afternoon, as they resumed trading after a four-day long weekend to celebrate 70 years since the end of World War Two.

The CSI300 index of the biggest stocks in Shanghai and Shenzhen closed down 3.4%, while the Shanghai Composite Index was 2.5% lower.

Stressing Stability

Chinese policymakers are determined to show their financial markets are back to normal, after the wild swings in stocks combined with last month’s surprise devaluation in the yuan, or renminbi, caused jitters in markets around the world.

Central Bank Governor told financial leaders from the world’s 20 biggest economies over the weekend that Chinese equity markets had almost completed their correction after a steep run up in the first half of the year.

Currently, the renminbi to dollar exchange rate already tends toward stability, the stock market adjustment is already roughly in place and financial markets can be expected to be more stable.
— China Central Bank Governor

A string of soft economic data has made it harder for Chinese regulators to bring stability back to their markets, as fears grow of a hard landing for the world’s second-biggest economy.

Earlier on Monday, China revised down its reading for growth in 2014, saying the economy expanded by 7.3%, a notch below the previous estimate of 7.4%.

This year the economy is headed for its slowest expansion in 25 years, and concerns have been building that it may miss the official growth forecast of around 7%.