China Stocks Plunge Amid Fears of Beijing Pulling Back

I just love the smell of Chinese markets crashing in the morning.

At the Wall Street Journal, "China Stocks Tumble 8.5%, Calling Into Question Beijing’s Ability to Prop Up Market":

Chinese shares suffered their biggest one-day drop in more than eight years, wiping out hundreds of billions of dollars of market value and calling into question the effectiveness of Beijing’s recent efforts to prop up the market.

The Shanghai Composite Index, which includes China’s biggest companies, fell 8.5% to 3725.56, with the losses coming mostly during a hectic last two hours of trading on Monday afternoon. More than two-thirds of the 1,114 companies included in the index fell by the 10% daily maximum allowed under local market rules.

The smaller Shenzhen market fell 7% to 2160.09, bringing its losses to 31% since it hit a record high in mid-June.

Traders and analysts listed several reasons for the sudden slide, which came amid relatively thin trading volumes. Some cited fears about the effect of an unwinding of heavy borrowing that investors have used to buy shares. Others pointed to concern that the government could soon pull back on its recent attempts to underpin the market.

A spokesman for China’s top securities regulator tried to allay some of these concerns, saying late Monday night that the government will step up its purchases of stocks. Zhang Xiaojun, spokesman at the China Securities Regulatory Commission, said the CSRC-owned company that has been buying up battered shares didn’t “exit” the market. Mr. Zhang said the company, called China Securities Finance Corp., will “increase its holdings” of stocks “at appropriate times” and will continue to fulfill its role in “stabilizing the market.”

Mr. Zhang also pledged to root out any “malicious” stock sales by individuals that authorities think could wreak havoc on the market.

Monday’s big decline shows investors have become skeptical of the market and of the government’s ability to control it. China’s stock market has a history of volatility, and government-engineered bull markets have sometimes ended with spectacular selloffs that left stocks languishing for years.

China’s top leaders, currently gathering for their annual summer talks at the northern seaside town of Beidaihe, will have on their agenda what further action they can take to bring stability back to the stock market and to prevent the market’s problems from spreading to other parts of the economy...

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