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Stocks in Chinese companies took a substantial fall in value once again after the incumbent Premier of the State Council of the People’s Republic of China, Li Keqiang, failed to mention the deepening crisis in a statement on economic affairs.
In a report today by the Guardian, before the market opened, Li said in comments on a government website that China had the confidence and ability to deal with challenges faced by its economy, but had nothing to say on the three-week plunge that has knocked around 30% off Chinese shares since mid-June.
Economics reporter Nils Pratley stated “The latest official attempt to manipulate the stock market would be laughed out of court if it were attempted in the west. The central bank is shovelling cash towards a state-backed finance company that lends to individuals who would like to make bigger bets on the stock market than they can afford. That’s right, in today’s communist China, there are subsidies for stock market speculation.”
After a brief pause to the slide on Monday, the CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 1.8% on Tuesday, while the Shanghai Composite Index shed 1.3%.
The ChiNext growth board, home to some of China’s giddiest small-cap valuations, fell 5.1%.
In an attempt to halt the slide, China has arranged a curb on new share issues and orchestrated brokerages and fund managers to buy massive amounts of stocks, helped by China’s state-backed margin finance company, which in turn has a direct line of liquidity from the central bank.
Analysts said the government was taking a big risk. “China’s leadership has doubled down on its efforts to prop up equity prices because it believes that its own credibility is now coupled to continued gains on the markets,” said Mark Williams of Capital Economics in a report.
“It is following a risky path. Our view remains that a market rally cannot run ahead of economic fundamentals indefinitely,” he said. “There is a good chance that the market rescue efforts are seen to be a failure in a few months’ time.”
“I don’t see any change in the downward trend,” said Qi Yifeng, analyst at consultancy CEBM. “It’s only a matter of whether the market will fall more slowly, or continue to go south in a free fall.”
Global investors have grown increasingly worried that a crash could destabilise the world’s second-biggest economy and the source of much of the world’s economic growth.
The official Shanghai Securities News reported on Tuesday that China’s major insurance firms ploughed tens of billions of yuan into blue-chip exchange-traded funds (ETF) and large caps on Monday.