CSRC denies government funds exit report

China’s securities regulator reiterates Beijing's determination to stabilise equity markets and denies a report that government funds might be withdrawn.

The Chinese securities regulator has reiterated its determination to stabilise the country’s still-volatile equity market, denying a report by financial magazine Caijing that it is studying plans to withdraw funds recently deployed to help improve market liquidity.

In a statement posted online on Monday, Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, said the next step for the regulator is to “continue stabilising the market, restoring investor confidence, and preventing systemic risks.” 

After Chinese shares tumbled by around 30% in the space of just three weeks in June/July, the government responded with a series of extraordinary rescue measures to help stabilise the market, including the suspension of initial public offerings and a massive injection of funds.

On Friday, local media reported that China’s biggest state-owned banks, including Industrial and Commercial Bank of China and Agricultural Bank of China, jointly lent about Rmb1.3 trillion ($209 billion) to the China Securities Finance Corporation, which provides liquidity to the market.

The scale of the lending, much larger than previously revealed, highlights Beijing’s determination to prop up stock prices. The CSF, managed by the CSRC, is the only official margin lender for brokerages.

Previously, the People’s Bank of China said on its website that it was “actively assisting” the CSF to ensure it has ample liquidity through interbank lending, bond issuance, and collateral finance.

The CSRC’s announcement on Monday came after widely-respected Caijing magazine reported that the regulator had recently assessed channels for the withdrawal of government funds. In that respect, the potential withdrawal of CSF funds would have the widest ramifications since much of the capital has come from state-owned banks and some Rmb260 billion was forwarded to 21 brokers to invest in blue-chip shares.

“The amount of the capital from the CSF injected into the market is huge. If this part of the funds has not been handled properly, all the previous efforts to stabilise the market will be wasted,” Caijing reported.

However, the CSRC subsequently called the report “untrue”. 

“The related publication was being irresponsible for publishing such a big market-moving report without checking with the regulatory department,” CSRC spokesman Zhang said.

No buffer fund

Caijing also reported earlier on Monday that the regulator was not considering a formal market buffer fund, contrary to other Chinese media reports.

Cheng Boming, general manager of Citic Securities, was quoted in the Caijing report warning that such a fund could lead to "moral hazards", by supporting share prices artificially and encouraging investors to take disproportionate risks.

“In that case, the government will always have to endorse the stock market in spite of its ups and downs. This will go against the market principles of openness, fairness, and impartiality,” Cheng said.

The CSRC's statement made no mention of the second Caijing report, although both reports were removed from the Caijing website in the wake of the CSRC announcement.

Caijing could not be immediately reached for comment.

Chinese stocks fell sharply in early trade on Monday following the Caijing reports but closed the day higher. The benchmark Shanghai composite index posted a modest gain of 0.9% while the tech-heavy Shenzhen index ended up 1.8%. 

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