Will China’s grip on share sales bear short term gain or long term woe?

While the Chinese securities regulator’s latest move to rein in stock dumping by substantial shareholders will support the secondary market performance in the short run, the downside may be farther reaching.

Analysts believe that the stricter rules will weigh on the primary merger and acquisition market (M&A) and dampen investment activities by professional institutional investors that could in turn impact the long-term liquidity and performance of the A-share market.

The benchmark Shanghai Composite Index added 0.23 per cent to close at 3117.2 on Wednesday, after it resumed trading following a two-day Dragon Boat Festival holiday. The Shenzhen Component Index added 0.06 per cent to close at 9864.8.

“The new rules have largely alleviated pressure brought by share disposal by substantial shareholders on the A-share market, which will restore market confidence in short term,” analysts Liao Ling and Chen Jie at GF Securities based in Guangzhou wrote in a research note issued on Monday.

“As for the long run, it could eliminate the arbitrage room between the primary market and secondary market, pushing valuation of some companies good at speculating share prices, back to normal, while benefiting companies stressing organic growth and shareholders’ benefit,” the note said.

“In recent years, some companies have developed a new way to lift share prices,” said Guo Shiliang, independent financial columnist based in Guangzhou.