The securities regulator in China announced on Sunday its decision to fully suspend the lending of restricted shares, effective from Monday, as part of the government’s ongoing efforts to stabilize the country’s stock markets following recent sharp declines.
While a series of supportive policies, including a significant reduction in bank reserves by Beijing, initially helped lift Chinese stocks from five-year lows earlier last week, they retreated again on Friday. This reflects deep investor pessimism regarding the market outlook and the overall stability of the economy.
Analysts and investors are urging Beijing to implement additional support measures to revive both consumer and business confidence, aiming to restore market activity on a more solid footing.
Restricted shares, typically allocated to company employees or investors with certain sale limitations, can be lent to others for trading purposes, such as short-selling. This practice can exert further pressure on markets during prolonged downturns.
In a statement published on its official WeChat account, the China Securities Regulatory Commission (CSRC) stated that the suspension of restricted share lending would promote fairness and reasonableness while curbing the efficiency of securities lending. This move aims to limit institutional advantages in the use of information and tools, providing all types of investors with more time to process market information and fostering a fairer market order.
Additionally, the CSRC emphasized its commitment to cracking down on illegal activities exploiting securities lending to reduce holdings and cash out.
The regulator also announced plans to restrict the efficiency of certain securities lending in the securities refinancing market starting from March 18. Last October, the CSRC had already imposed restrictions on securities lending businesses and tightened scrutiny on improper regulatory arbitrage by imposing higher margin requirements.
Despite some recovery in the blue-chip CSI300 Index, which remains down approximately 3% year-to-date, China’s stock market has continued its slide into the new year. Small Chinese investors are reportedly seeking exits from the market even more urgently than foreign investors, driving premiums on global index funds higher as they seek exposure to alternative investments amid concerns about the domestic economy’s slowdown.
China’s economy grew by 5.2% in 2023, slightly exceeding the government’s target. However, this comparison was influenced by a weak 2022 due to lockdowns, and the recovery has been uneven. December data indicated lackluster consumption and the sharpest decline in home prices in nine years, signaling a deep crisis in the property market.
In response to the challenging market conditions, both the Shanghai and Shenzhen stock exchanges announced the suspension of securities lending by strategic investors during lockup periods, effective from January 29.
