GOVERNMENT ISSUES MEASURES TO CONTROL STOCK PRICES
July 09, 2008 | BY
clpstaff &clp articlesThe China Securities Regulatory Commission orders fund managers to behave and not to sell large holdings of stock into a falling market, in an attempt…
The China Securities Regulatory Commission orders fund managers to behave and not to sell large holdings of stock into a falling market, in an attempt to rebound the stock prices.
“The objective behind it is quite obvious,” said John Flanigan, co-managing partner at Salans' Shanghai office. “[The government wants to] prevent the market from plummeting after the [earthquake] disaster, especially since the Chinese A-share market has lost nearly 50% of its market capitalization from its peak last October.”
Lawrence Guo, partner at Broad & Bright, said the government's move will strengthen the confidence of public fund investors as well as the credibility of fund management companies. “It is a serious step taken by CSRC to enforce securities fund management regulations and to curb violations by fund managers.”
But such a step does not represent the government's intention to interfere with the trading activities of investment funds in the long run. Flanigan said that the CSRC's action is not an enforceable prohibition but an interim policy to maintain market stability, so the impact on foreign investors is minimal.
“The impact, if any, would be indirect and limited to foreign investors,” Guo said. “In general, foreign investors still cannot directly invest in the PRC A share market except for a limited number of strategic investments.”
To prevent stock prices from continuing to fall, the government has issued a number of measures to let investors regain confidence. They reduced stamp duty rate from 0.3% to 0.1% and imposed restrictions on shareholders to prevent them selling their holdings without limitations on the stock exchanges.
But Flanigan said that from past experience, the Chinese government's intervention has limited effects on the market in the long run, so the recent regulatory steps will only have short-term effects and may not even be sufficient for the market environment.
What the government should focus on “maintaining firm enforcement of a reliable body of market rules on listing criteria, disclosure, corporate governance, insider trading and to continue to improve the overall regulatory framework,” Flanigan said.
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