The China Securities Regulatory Commission (CSRC) is responding to China’s stock market plunge by seeking to control market volatility and pledging to take the necessary measures. However, details of the regulator’s planned actions remain vague, leaving investors uncertain about the future of the Chinese economy, especially as property giant Evergrande recently made its bankruptcy official.
Will the CSRC be able to keep its promises to stabilize the Chinese economy?
Following the Chinese stock market’s plunge to its lowest level in 5 years, the China Securities Regulatory Commission (CSRC) has pledged to implement measures to protect the market from excessively volatile fluctuations, although the details of these planned measures have not been specified.
The CSI300 index, comprising China’s top 300 equities, has been going through a period of high volatility since its peak in February 2021, when it reached 5,930 yuan. In the space of 3 years, around $7,000 billion in value has been wiped out, with the current CSI300 price at 3,200 yuan, down 46%.
CSI300 price since 2019
Already at the end of January 2024, the CSRC had tried to curb the fall in Chinese markets by limiting the scope for taking short positions. Despite this, these measures failed to halt the fall in prices, probably triggered by the bankruptcy of Evergrande, the Chinese real estate giant.
Although the regulator has pledged to combat malicious short selling in order to discourage short-term speculation and encourage long-term investment, leading to a short-term rebound, the real impact of these commitments on the CSI300 price remains uncertain.
Some experts suggest that the Chinese government should consider creating a market stabilization fund of at least 10 trillion yuan ($1.4 trillion) to prevent widespread panic in the markets.
In addition, the yuan’s exchange rate against the dollar, which remained below 6.5 dollars per yuan for over a year from November 2020, has seen its rate fluctuate between 7 and 7.3 dollars per yuan recently, reflecting a depreciation of around 13% of the yuan against the dollar, and adding another challenge to the Chinese economy.
