Asia Minute: Chinese Government Role in Stock Market Not Always Clear

Jan 6, 2016

Credit tonynetone/ Flickr

Three trading days into the New Year, financial markets around the world remain uncertain. And a lot of that nervousness begins with China. Part of it relates to the economy, but it’s also uncertainty about what the government will do when it comes to the stock market. HPR’s Bill Dorman has more in today’s Asia Minute.

Transparency has never been a particular strength of China’s stock market.  Investors at home and abroad know the government plays a role in the market, but the extent is a moving target and not always clear.  This week is a good example.

China’s central bank pumped about 20-billion dollars into the financial system Tuesday - a move reported by the country’s official news agency.  The behavior of state-controlled funds is less clear.  Bloomberg and others reported those funds were buying shares in the market Tuesday, but that’s the sort of intervention that doesn’t come out in a news release.

This summer, regulators planned steps to reduce volatility after China’s market crash shook financial markets around the world.  That’s why trading was halted for 15 minutes when share prices fell 5% Monday…then closed for the day after falling 7%.

It’s a new rule for China - similar to so-called circuit breakers in place in other global markets.  Other Chinese rules are not part of usual market behavior—such as banning short selling or restricting share sales.   In July investors holding more than 5% of a company and corporate executives and directors were banned from selling their stock for 6 months.

That ban is set to expire on Friday, unless the government steps in again to extend it.  Meanwhile, global investors are keeping a nervous eye on China.