New | Shadow lending limits Chinese government's moves to boost stock market
Borrowers add to selling pressures as they let go of stocks to meet margin call
Although China's central government has rolled out a series of market-boosting measures amid the sharp fall in share prices, they will have only a minimal impact because of rampant margin financing on the grey market, analysts say.
The measures will not help much because of a massive sell-off as borrowers are forced to sell their stocks to meet margin calls, the experts say.
Chinese authorities took unprecedented moves to stabilise the stock market after the benchmark Shanghai Composite Index dived nearly 30 per cent over the course of just three weeks. Some critics and state media blamed the plunge on selling pressures.
The China Securities Regulatory Commission on Sunday said the central bank, the People's Bank of China, would give liquidity support to the China Securities Finance Corporation, the official platform that lends money to brokerages to develop margin financing businesses.
The government also pushed out other measures to correct the market volatility, including launching a 120 billion yuan (HK$152 billion) stabilising fund by major brokerages and loosening regulations on official margin trading businesses.
But analysts say the government support is not enough to offset the selling pressure now that most of the investors using grey-market financing to buy stocks appear to be stuck with heavy paper losses.
"The falling market is very dangerous," Zhejiang entrepreneur Fang Peilin said. "It's a do-or-die moment for thousands of investors as they rue their heavy losses."