The Chinese stock market in the spring of 2024 has been unsettling for many, with an unprecedented fierce battle unfolding in the face of the critical situation in the season. On February 6, the China Securities Regulatory Commission (CSRC) once again intervened, announcing the suspension of securities firms' stock lending activities and setting a cap on the scale of securities refinancing as part of further measures to curb short-selling behavior. The CSRC also pledged to prohibit the act of providing securities loans to investors who sell stocks on the same day, as well as to crack down on illegal arbitrage activities using short-selling.
In essence, this is an attempt to control market short-selling by compressing and controlling the basic operations of securities firms, close to the complete "closure" of the stock market. Interestingly, according to the CSRC's data on so-called "malicious" short-selling, the amount involved is only a few billion yuan, while the daily trading volume of the Chinese stock market exceeds trillions. Therefore, the "few billions" in short-selling transactions cannot actually trigger a widespread stock market crash.
Clearly, the fundamental problem with the Chinese stock market is perhaps not the issue of so-called "malicious" short-selling, but rather the lack of confidence among Chinese investors in the long-term trend of China's economic development. A series of problems are evident to almost every investor: real estate collapses, financial product defaults, debt crises, industry downturns, malls facing business issues, and numerous companies struggling to survive. These economic matters are the primary causes of this stock market crash. There is also the issue of bleeding the stock market, with excessive issuance of stocks and IPOs, the desperate rush to bleed the stock market, and the obvious mentality of trying to catch the last train, which is likely another important factor contributing to the sharp decline in the Chinese stock market.
In fact, swift measures probably have already begun around February 4 and 5. That was when the CSRC started imposing severe and comprehensive restrictions on institutional "selling". In the first two months, the "sales restriction" was still limited to specific quotas, allowing institutions to sell only a certain amount per day. Now, the decision is to directly disable selling. This approach is simply astounding. When institutions want to "sell", is it their own decision? The money involved does not belong to the institutions but to the investors.
The current capital control measures are actually unprecedentedly stringent. Across the country, capital are "moving out", and all liquidity is being "absorbed" by government bonds. The money originally invested in stocks by institutions is also "relocating", with various investors redeeming their funds and turning to invest in government bonds. Therefore, the vast majority of capital migration is government-mandated. Even moderately sized "major players" are subject to "political obligations" regarding the purchase of government bonds, and this occurred at the end of October 2023. Consequently, government bonds are also one of the manipulation tools used to crash the stock market. Of course, with this happening, it has turned into a game of "left hand" hitting "right hand." This is a case where "macro-level major problems" have arisen, which cannot be solved by the securities market itself.
On February 6, Bloomberg reported, citing informed sources, that regulatory agencies led by the CSRC plan to brief the top leadership of the Communist Party of China on the same day concerning the market situation and the latest policy measures. As a result, on that day, both the Shanghai Composite Index and the Shenzhen Component Index experienced significant rebounds. The Shanghai Composite Index briefly rose above 2800 points, closing at 2789.49 points. The offshore RMB exchange rate against the USD also broke the 7.2 mark, rising more than 200 points intraday. Bloomberg believes signs are showing that the top leadership of the central government is increasingly involved in the country's financial and economic policies, including an unprecedented inspection of the central bank at the end of last year. Bloomberg's sources also revealed that the CSRC has held at least a dozen meetings in the past two months to discuss stabilizing the capital market, but the worst stock market crash still occurred.
China essentially mobilized a "financial special force" this time to stabilize the stock market, which is certainly shocking. However, the key issue is whether, after such a stabilization act, the Chinese stock market will collapse and disappear. At first glance, many people might agree with this point.
However, I do not quite agree with such an approach. I think that while the pressure of such a strong stabilization may be terrifying, can Chinese investors still do something else? Will they switch to other professions from stock market investment? Apparently not. They are unable to do anything else. Hence, they can only continue to take advantage of the chaotic situation in the stock market, hoping to become the furthest ship ahead before the giant waves hit the mutually harming state of affairs.
Therefore, the conclusion is that the Chinese stock market is fine; it is a part of China; as China is not sinking, nor will its stock market sink. In fact, the relentless decline of the stock market is clearly a precursor to economic decline or collapse. This was the case in Japan, and it is also the case in China. After Japan's bubble economy burst in 1989, the Nikkei index plummeted from 38,957 to 6,694. Similarly, the spring stock market crash in China is also a prelude to economic decline. The biggest problem is that everyone is busy "sharing the cake" in the economic stock, and this cannot lead to positive economic trends.
