China stocks sink again despite government efforts

Chinese shares took another tumble Tuesday, defying government efforts to arrest a precipitous fall that has wiped an estimated $3.2 trillion off markets and threatens the world's number-two economy.

The government over the weekend announced a halt to initial public offerings (IPOs) and moves to pour funds into the market to end three weeks of plunging prices.

Analysts say the heavy-handed intervention throws into question the pace of China's economic reforms and the ability of the government to engineer controlled deflation of what many describe as a stock market bubble.

The benchmark Shanghai Composite Index fell 1.29 percent, or 48.79 points, to end at 3,727.12 on turnover of 776.1 billion yuan ($126.9 billion). It was down as much as 5.05 percent during the day.

The Shenzhen Composite Index, which tracks stocks on China?s second exchange, slumped 5.34 percent, or 109.02 points, to 1,932.83 on thin turnover of 301.4 billion yuan.

There were some rises among heavyweight blue-chips, which are the main beneficiaries of the government response, but most firms fell, dragging down the index.

Banks were among the biggest gainers in Shanghai. Industry giant ICBC gained 3.80 percent to 5.74 yuan while China Construction Bank surged by its 10 percent daily limit to 7.47 yuan.

But Shandong Lukang Pharmaceutical lost its 10 percent daily limit to 9.60 yuan while Anyuan Coal Industry Group also plummeted 10 percent to 5.81 yuan.

Hong Kong equities retreated 1.03 percent, tracking the mainland sell-off with dual-listed firms' prices tumbling in the city.

"The slumping Chinese stock market has raised concerns of systemic risks," ANZ Banking Group said in a research note on Monday.

When the Communist Party launched a stock market -- the ultimate capitalist tool -- 25 years ago it kept strict control over key decisions, including which companies can list and who could invest.

Under the administration of President Xi Jinping, policymakers unleashed a liquidity surge and state media urged the market forward, seeking a boost for a slowing economy and populist cheer among investors for their growing fortunes.

Over 12 months Shanghai soared more than 150 percent.

But Communist planners are now facing the challenge of trying to prevent a market crash that could spark social unrest from disgruntled investors and infect the larger economy.

"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," Mark Williams, chief Asia economist for Capital Economics, said in a research report on Tuesday.

"It is following a risky path."

- Correction fears -

On Sunday, the government said the central bank would provide funds to the state-backed China Securities Finance Co. to help "protect the stability of the securities market".

The China Securities Regulatory Commission (CSRC) also said there would be a temporary halt to IPOs, which tend to drain funds from the rest of the market, hurting prices and sentiment.

A day before, China's 21 largest brokerages said they would invest at least 120 billion yuan ($19.3 billion) in so-called "blue chip" exchange traded funds (ETFs).

The latest moves followed an interest rate cut, relaxed rules on margin trading, and proposals to let the state social security funds invest in equities -- which failed to arrest a near 30 percent fall over the three weeks to Friday.

"It's coming to a point where you?re covering one bad policy with another," Tai Hui, Hong Kong-based chief Asia market strategist at JPMorgan Asset Management, told Bloomberg News.

"A lot of investors are still concerned about another correction."

Haitong Securities analyst Zhang Qi said it was hard to tell where the bottom is for the Shanghai market.

"With investors' confidence towards the market shattered, it's really hard to tell when it will start to stabilise and recover from recent falls," he told AFP.

Chinese punters are overwhelmingly small, retail investors who have made bets using borrowed money through a practice called margin trading. Under it, they only need to deposit a small proportion of the value of their trades, potentially generating bigger profits but also exposing them to bigger losses.

At a securities trading centre in downtown Shanghai, one elderly investor expressed anger at the government for his losses.

"I have been in the market for more than 25 years and this is the worst fall in terms of the speed the market went down," said Gu Yongbiao, 60.

"The government only cares about the institutions and not the individual investors," he said.