Mild rebound after ‘circuit-breaker’ system suspended

Mainland stock markets rebounded mildly on Friday after the China Securities Regulatory Commission (CSRC), China's watchdog for securities, suspended the stock circuit-breaker mechanism. The CSRC's intervention put an urgent brake on plunging mainland stock markets, whose blue-chip CSI 300 index had a sharp dive of 7 percent both on Monday and Thursday, triggering an end to trading for the whole day. The benchmark Shanghai Composite Index climbed 1.97 percent or 61.41 points to end at 3186.41 points, while the Shenzhen Component Index rose 1.2 percent or 128.63 points to close at 10,888.91 points on Friday. The CSRC said in its Thursday night statement that judging from its recent operation, the circuit-breaker system, which was launched on Monday, had not achieved its expected effect. Wu Hong, director of the School of Economic Law at the East China University of Political Science and Law, told the Global Times that the CSRC's suspension of the system came at an urgent point. "The circuit-breaker system itself does not intensify stock fluctuations, but the system may not be mature enough in China, and has not exerted its function in stabilizing the markets," he noted."Therefore, suspending the system can help restore confidence among domestic investors and stabilize the markets." Ding Jianping, director of the Research Center for Modern Finance at the Shanghai University of Finance and Economics, told the Global Times on Friday that the government should have run simulations of the system with the help of research institutions to determine how it should be set for the domestic markets. Rumors have circulated about the possible resign of Xiao Gang, chairman of the CSRC. The South China Morning Post cited an anonymous source as saying that the launch of the circuit-breaker system was approved by Xiao in 2015 and it needed no approval from the State Council. Meanwhile, the CSRC announced on Friday that Xiao was appointed director of the poverty alleviation and development group under the CSRC. Global influence Analysts said that the recent stock market plunge in China was triggered partly because the yuan's continuous depreciation and the interest rate rise in the US have prompted hot money to flee from Chinese markets, while intensifying investors' worries about insufficient liquidity. The People's Bank of China, China's central bank, fixed the yuan's central parity rate at 6.5636 per dollar on Friday, somewhat firmer than its previous rate, ending eight days of weakening the currency. The yuan has been edging down since the PBC adopted a more market-orientated central parity system in August, but fluctuations have been stronger in recent days, though Ding said that the yuan's depreciation level so far is within a "reasonable" range. Another reason for the recent slump is China's gloomy economic situation, according to Wu. "Investors' confidence has been swayed after government leaders acknowledged that China is facing economic difficulties at the present stage at the Central Economic Work Conference held in December 2015," he noted. The BBC also reported on Thursday that the recent stock fluctuation in China have been spurring worries as to whether the Chinese economy is heading for a "hard landing," too sharp a slowdown. It said that the slump on Chinese markets prompted renewed panic on global markets, with indexes such as the FTSE 100 share index in London, the tech-rich NASDAQ index in New York and Germany's Dax index all shedding on Thursday. But Li Shifeng, a partner at the Beijing-based asset management firm Tao Feng Fund Co, told the Global Times that in the longer term, overseas stock markets' performance is determined by their own economies. "Influence from Chinese mainland stock markets is just temporary," he noted. Wu also said that it is not necessarily the case that China's economy will have a "hard landing," particularly when the government has launched a series of reforms to prop up the real economy. Certain sectors, like the real estate industry, have also shown signs of warming. Wu predicted that the stock markets would stabilize for a while after the CSRC's interference, but risks still exist. "The listed corporations will release their financial reports soon, and that would determine whether the mainland stock markets will rebound firmly or continue sliding," he noted.