What is happening in China’s stock market?

China’s markets have continued a multi-year slide in recent days, prompting China’s securities regulator to introduce new measures and even change its senior leadership.

On Monday, 5 February, China’s blue-chip CSI 300 Index fell by close to 5%, hitting its lowest level since 2019. Confidence in the market has waned amid an economic turndown, driven by issues such as a debt-ridden property industry.

The latest fall came on a day of highly negative news, which did little to help sentiment. Chinese billionaire banker Bao Fan, who vanished from public view last year, resigned from all roles at his firm, China Renaissance Holdings. Elsewhere, the former president of China Merchants Bank, Tian Huiyu, was handed a suspended death sentence for corruption and insider trading. The court said that he had used his position to accrue illegal gains of over RMB 290 million (£32.2 million).

The sliding markets prompted further action by the country’s regulator, the China Securities Regulatory Commission (CSRC).

On Sunday, 5 February, CSRC issued a statement promising more market stabilisation methods, a listening ear for investors, and a crackdown on misbehaviours such as market manipulation.

Then, on Tuesday, 6 February, CSRC announced more measures to prop up the market and curb short-selling, including:

• The suspension of brokerages borrowing shares from institutional investors for short sales
• A cap on the size of the so-called securities re-lending business
• A ban on securities lending to investors who sell stocks on the same day of purchase

The same day, Bloomberg reported that President Xi Jinping would be holding talks with CSRC, leading to a brief stock rally. As of the time of publication, no further news or confirmation has come out about these talks.

As a result, on Wednesday 7 February, trading activity in the CSI 300 and other indexes rose to the highest levels since August 2023. China’s so-called ‘National Team’ of state-backed financial institutions, including Central Huijin (a unit of the sovereign wealth fund China Investment Corp) have already stepped in to purchase exchange traded funds to help maintain the market.

In a further surprise move, on Wednesday 7 February, the Xinhua news service announced that CSRC would replace its head, Yi Huiman, with Wu Qing, a banking veteran who has led the Shanghai Stock Exchange and has a reputation for taking tough action. As SCMP points out, Wu will now face the daunting task of alleviating the concerns of China’s 220 million individual investors, the largest such group in the world.

Despite Wu’s appointment being seen as a broadly positive move, analysts have said that it will take concrete actions to reverse the currently-entrenched pessimism of investors, and that China’s continued crackdown on the finance sector will do little good to its ailing property sector, which is in need of credit from banks to finish housing projects.

As China goes into the week-long Lunar New Year and trading in China is suspended, the markets will have the opportunity to digest the announcements of the past week, with more changes expected in the weeks to come.