Bloomberg, citing anonymous sources, revealed that China’s largest brokerage firm, CITIC Securities, has temporarily suspended margin financing for individual investors and increased requirements for institutional clients in response to the sluggish stock market.
China’s National Bureau of Statistics announced on Wednesday that the country’s gross domestic product (GDP) is expected to grow by 5.2% year-on-year in 2023. Although this figure may not seem low, it is actually the slowest growth rate in thirty years, excluding the three years affected by the pandemic.
Economists have also pointed out that China’s growth is slowing down, with high levels of debt, a crisis in the real estate market, and a shrinking labor force all dragging down economic output.
The disappointing economic data has once again triggered a sell-off in the Chinese stock market on Wednesday, with the Shanghai A-shares falling below 2800 points to reach a 45-month low. Against this backdrop, Bloomberg today quoted informed sources as saying that due to the further plunge in the stock market, CITIC Securities has suspended short-selling for some clients in the domestic market. Although it is currently unclear how many securities firms have imposed restrictions on short-selling, this move indicates that the authorities are eager to support the market in a more aggressive manner after earlier measures, such as government purchases of bank stocks, failed to boost market sentiment. The report also indicates that trading activities of some major exchange-traded funds in China have surged on Thursday, suggesting that state institutions may be buying in.
Increased difficulty in short-selling since October last year
In fact, the Chinese government began cracking down on short-selling behavior more than two months ago. According to Xinhua News Agency, the main market regulatory authorities have increased the margin requirement for securities lending. Analysts pointed out directly that “short-selling in the Chinese stock market has become more difficult.” While investors in Taiwan, Japan, the United States, and other countries are celebrating the bull market, retail investors in China are becoming increasingly frustrated, and foreign investors have already exited.
Effectiveness of restricting short-selling in the market?
On the other hand, it is unknown whether the strategy of restricting short-selling is effective. It is understood that during the previous bull and bear cycle in the stock market in 2015, China also restricted short-selling to drive out short-term traders, but the market continued to decline in the following months.
Whether China’s economy can continue to rebound in the future still needs time to verify.