Link between Chinese economy, bourses is 'weak': analyst
Shares on Chinese mainland stock markets bounced back on Thursday after a series of government measures were implemented to prop them up.
The rebound helped restore public confidence in the government's ability to tame the stock markets and stabilize China's economic growth, analysts said.
The Shanghai Composite Index rose 5.76 percent or 202.14 points to close at 3,709.33 points, while the Shenzhen Component Index climbed 4.25 percent or 469.45 points to close at 11,510.34 points on Thursday.
ChiNext, the country's NASDAQ-style board for high-tech and startups, also rebounded 3.03 percent or 71.71 points to close at 2,435.76 points on Thursday.
The rebound came as China's Ministry of Public Security sent a team to the China Securities Regulatory Commission on Thursday morning.
As of Thursday night, police and the securities regulators have begun investigating more than 10 people and organizations under suspicion of "malicious" short-selling activities, the China Securities Journal said on its website.
A series of unprecedented emergency rescue measures have been implemented since last week, such as the suspension of IPOs, allowing 21 Chinese brokerages to invest 120 billion yuan ($19.3 billion) in blue-chip exchange-traded funds, and a promise from Central Huijin, a unit of China's sovereign wealth fund, to buy shares of blue chip stocks.
A third of the companies listed in the Shanghai and Shenzhen bourses also halted trading on Tuesday amid the continuous drop in share prices.
David Li Daokui, an economics professor at Tsinghua University, said that although the government's measures cannot be considered completely successful as of now, it shows the government's determination to stabilize the domestic stock markets.
"I have confidence that the government has the capability to eventually keep stock fluctuations under control," Li said.
Qian Qimin, an analyst at Shanghai-based Shenwan Hongyuan Securities, said that the stock market has its own rules and would automatically bounce back after dramatic falls, "like a pendulum swinging back and forth."
Western media rebuked
The rebound is considered by many as a rebuke to some Western media, who jumped at the opportunity and called the plunge a "failure of the Chinese government."
Li nevertheless noted that it's very "naïve" to equate government credibility with the performance of stock markets.
"Any country's stock market has ups and downs, but temporary stock fluctuations do not mean the government's leadership is at risk," Li said.
The Washington Post reported on Wednesday that if the slump continues, it would "slow the economy" and "undermine faith" in the Chinese Communist Party's leadership.
The Wall Street Journal also published a report on Wednesday, saying the Chinese government's efforts to tame mainland stock markets have "failed."
Li said that the stock performance would have little impact on the economy.
"The link between the economy and stock markets is very weak in China compared to countries like the US," he noted.
Stock loan deadline
China's two bourses announced late Thursday that they will reduce the transaction fees on blue chips by 30 percent and transfer fees by 33 percent.
Five State-owned commercial banks and several non-commercial banks also announced on Wednesday and Thursday that they would not sell shares they own in listed companies, after the Ministry of Finance made a similar promise on Wednesday.
The China Banking Regulatory Commission announced on Thursday that banking institutions can prolong the deadline for stock loans, after reaching an agreement with their clients.
"Prolonging the deadline would prevent further fluctuations to the stock markets," Qian noted.
Qian cautioned that the recent market plunge shows that domestic investors need to be better informed on investing in stocks. "They should learn to invest in a much more measured way."
Li said that the government should learn from this experience and launch financial reforms to prevent it from happening again.