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On Friday, the China Securities Regulatory Commission unveiled a series of measures aimed at reviving the battered stock market, which has plummeted to a fresh 9-month low. At the heart of this decline are the worsening crises in China’s housing and shadow lending sectors, with one of the country’s biggest property developers declaring bankruptcy on Thursday.  

China Proposes Cutting Trading Costs and Boosting Equity Funds

On Friday, China’s securities watchdog introduced a set of measures geared towards shoring up the country’s deteriorating stock market. Recently, Chinese stocks have embarked on a steep downward path amidst the deepening housing market crisis.

In particular, the China Securities Regulatory Commission (CSRC) unveiled steps such as reducing trading costs, supporting stock buybacks, and stimulating long-term investments. The CSRC also proposed measures such as facilitating the development of equity funds, exploring options to extend trading hours, and improving the appeal of publicly listed companies.

Bringing back stability to the stock market remains a top priority, CSRC said.

“Without a relatively stable market environment, there’s no basis for reviving the market and lifting sentiment.”

– the regulator noted.

The move comes less than a day after Evergrande, one of the largest property developers in China, filed for bankruptcy protection in a New York court. China’s housing market has been facing a crunch for months, with Evergrande being the world’s most heavily indebted property developer.

Chinese Financial Markets at Risk of Substantial Capital Outflows

However, Chinese investors were not thrilled with the proposed measures. Wanji Asset Management fund manager Niu Chunbao said the policies would not compensate for the broader issues plaguing the Chinese economy.  

“The key to lifting market sentiment is to rescue the economy, and the property market is the crux. The market is short of confidence because investors see no concrete measures to fix the economy.”

– Niu said.

With the housing sector showing no signs of recovery, the mainland financial markets in China are facing growing risks of a cruel cycle of capital outflows. At the same time, the nation’s economy is “at serious risk of sliding into a deflationary episode that could spark a self-reinforcing downward spiral in growth and private sector confidence,” Eswar Prasad, a China finance expert at Cornell University, said earlier this month.

“The Chinese economy is now at serious risk of sliding into a deflationary episode that could spark a self-reinforcing downward spiral in growth and private sector confidence,” said Eswar Prasad, a China finance expert at Cornell University. “The government needs to act quickly… pic.twitter.com/EpErHPjBVL

— Theresa Fallon (@TheresaAFallon) August 9, 2023

Retail sales in China climbed by 2.5% in July from a year ago, significantly below expectations for a 4.5% growth. Meanwhile, the Chinese stock market index CSI 300 fell more than 1.2% on Friday, hitting the lowest point in nine months. 

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