China Bans Significant Shareholders from Trading

Chinese stocks bounced on Thursday, after the securities regulator banned shareholders with large stakes in listed firms from selling, in Beijing’s most drastic step yet to stem the dramatic plunges that have roiled global financial markets.  As the daily drumbeat of official announcements aimed at propping up the sinking equity market continued, state news agency Xinhua said police would investigate “malicious” short selling of stocks, and the banking regulator said it would allow lenders to roll over loans backed by stocks.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 2 percent in early trading, while the Shanghai Composite Index gained 1 percent. Both had tumbled around 6-7 percent on Wednesday.  More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China’s market turmoil will destabilize the financial system is now a bigger risk than the crisis in Greece.

Indeed, the Obama administration is worried the stock market crash could get in the way of Beijing’s economic reform agenda.  “The concern, that is a real one, is what does it mean about long-term growth in China,” U.S. Treasury Secretary Jack Lew said on Wednesday at an event in Washington on financial stability.