China has announced a crackdown on short sellers as Xi Jinping scrambles to halt a stock market rout.
The China Securities Regulatory Commission has said that investors will no longer be able to lend out shares for trading purposes for a set period of time.
Regulators said the change, which comes into force from Monday, is about “creating a fairer market order”. More restrictions on securities lending in the refinancing market are expected to be introduced in March.
It comes as the latest in a series of market interventions by the authorities which have so far failed to shore up China’s stock market.
China’s benchmark CSI 300 Index plunged to a five-year low early last week. The index has now lost a fifth of its value in the last nine months as investors dumped stocks amid concerns over the country’s economy. Hong Kong’s main share index has also been hit by the rout, with its value down 44pc over the past five years.
Beijing has been battling to reverse the decline through policies such as cutting bank reserves.
China’s $1.24 trillion (£1 trillion) sovereign wealth fund has purchased exchange traded funds (ETFs) and bank shares, while the country’s largest stockbroker has suspended short selling for some clients.
Short sellers borrow shares and sell them on the market, then buy them back at a later date and return them to their owners. If the share price falls, they make money as a result.
Large amounts of short selling can drive down prices sharply, meaning the practice is often restricted in markets that are under stress.
Beijing has also been moving to introduce informal restrictions on some investors to prevent them from selling stocks.
Last week, Chinese premier Li Qiang, one of President Xi’s closest allies, chaired a meeting to ask authorities to draw up more “forceful” measures which would boost the investment value of listed companies.
It led to three days of gains by the CSI 300 Index. However, by the end of the week, stocks retreated again in a sign that more stimulus was needed to help revive confidence.
The slide in share prices comes amid questions over the strength of the Chinese economy, with investor sentiment having taken a hit from the property downturn in the country.
Late last month, Xi Jinping made a rare admission of economic weakness, saying he was aware that people were struggling to “meet basic needs” in China.
The country has also been battling a continued manufacturing slowdown in the wake of the pandemic.
