Chinese shares fall as government lifeline to private sector fails to lift investors

Chinese investors appear unconvinced by a government-led plan to throw a lifeline to the country’s struggling private sector and prop up the stock market, with falls in stock indices on Tuesday wiping out much of the gains made the previous day.

Analysts also expressed scepticism about the government-led effort announced on Monday, arguing that more fundamental economic and financial reforms were needed in the midst of the trade war with the United States.

Chinese stocks had risen sharply after supportive comments by regulators and top officials, including President Xi Jinping and Vice-Premier Liu He, on Friday and on the weekend, with investors banking on significant support from the government for private companies and the faltering market. The benchmark Shanghai Composite Index rose 2.6 per cent on Friday and a further 4.1 per cent on Monday.

But the precise measures announced by regulators and an association representing state-owned financial firms on Monday night failed to meet expectations, resulting in a sharp drop in stock prices.

The Shanghai Composite fell 2.6 per cent to 2,594.83 on Tuesday.

Analysts said Chinese investors were sensitive to fresh liquidity injections, but so far, Beijing had tried to stay away from directly pumping money into the secondary market, as its campaign to cut excess debt from the economy was still only half finished.