China convenes banks in bid to restore calm after stock rout

BEIJING (BLOOMBERG) – China’s securities regulator convened a virtual meeting with executives of major investment banks on Wednesday night (July 28), attempting to ease market fears about Beijing’s crackdown on the private education industry.

The hastily arranged call, which included attendees from several major international banks, was led by China Securities Regulatory Commission (CSRC) vice-chairman Fang Xinghai, sources said, asking not to be named discussing private information. Some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries, the sources said.

It is the latest sign that the Chinese authorities have become uncomfortable with a sell-off that sent the nation’s key stock indexes to the brink of a bear market on Wednesday morning. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to prop up the market.

 London-based Aberdeen Standard Investments emerging-market fund manager Adam Montanaro said: “What this shows is that there isn’t an intention to unilaterally destroy business models and businesses which are fundamentally aligned to the party’s priorities for China’s development.”

The step gives reassurance that the tutoring industry decision was a unique case and “should slowly begin to restore confidence if they can convince the market that the regulatory developments are not an attack on profitable enterprises”, he added.

China’s CSI 300 Index rebounded from early losses on Wednesday to close with a 0.2 per cent gain. Banks, viewed as prime targets for intervention because of their heavy weightings in benchmark indexes, were among the biggest contributors to the advance.

Chinese stock-index futures extended gains in late Hong Kong trading after Bloomberg reported the CSRC meeting, rising 2.3 per cent at 9.58pm local time. The regulator didn’t immediately respond to a request for comment.

The Nasdaq Golden Dragon China Index, which tracks Chinese stocks listed in the United States, jumped 9.3 per cent as at 12.24pm in New York, heading for the biggest gain since November 2008.

Wednesday’s reprieve followed a three-day plunge that erased nearly US$800 billion (S$1.09 trillion) of Chinese equity value, spilling over into everything from the yuan to the S&P 500 Index and US Treasuries during one of its most extreme phases on Tuesday.

The losses were triggered by China’s shock decision to ban swathes of its booming tutoring industry from making profits, raising foreign capital and going public. It was the government’s most extreme step yet to rein in companies it blames for exacerbating inequality, increasing financial risk and challenging the Communist Party’s grip on key segments of the economy.

The Chinese authorities have a long history of attempting to smooth swings in domestic markets, though their efforts have had mixed success in recent years. They are taking action now after the plunge in US-listed tutoring companies like TAL Education Group and New Oriental Education & Technology Group spread to nearly every corner of China’s onshore equity market.