China tries to calm investors with words, cash amid tougher market regulations

Beijing: China is breaking out its mouthpieces—and wallet—as it seeks to soothe investors in the face of tighter financial market regulations.

The central bank-run Financial News urged stock investors not to overreact to tougher regulations in front-page commentary on Wednesday. The monetary authority will prevent swings in liquidity from exceeding tolerable levels, the official Xinhua News Agency-owned China Securities Journal added in a separate front-page opinion piece. The People’s Bank of China (PBOC) then injected more cash into the financial system through open-market operations on Wednesday than on any day since January as the benchmark government bond yield climbed to the highest level in two years.

“Policymakers are trying to send a very clear signal—they do not want a disorderly deleveraging process,” said Tommy Xie, an economist in Singapore at Oversea-Chinese Banking Corp. “But investors are still concerned about policy risks, so any news on tighter regulation can still trigger quick market volatility in the near term.”

Mainland China’s benchmark Shanghai Composite Index retreated 2.1 per cent in April amid spiking bond yields as regulators overseeing banking, insurance and securities trading issued a flurry of directives, targeting everything from excessive borrowing to speculation in equities. The efforts won the central government’s public endorsement last week as top leaders including President Xi Jinping chaired a gathering to discuss “safeguarding national financial-market security” on 25 April.

Citing a poem by Chairman Mao Tse-Tung, the Financial News commentary urges investors to be more forward looking and to avoid creating short-term market fluctuations that could become obstacles as authorities tighten regulations. China Securities Journal, a newspaper the nation’s stocks, banking and insurance regulators use to disclose information, argued in its piece that orderly deleveraging “fits everybody’s interests” and extreme volatility is unlikely.

The China securities regulatory commission said in a statement on its official Weibo microblog on Wednesday that it’s going to strictly supervise the stock market and make preventing financial risks more of a priority. The securities regulator will safeguard the nation’s financial security by maintaining stability in the capital markets, according to the statement.

The PBOC injected a net 140 billion yuan ($20.3 billion) into the banking system with open-market operations on Wednesday in the largest single-day addition since 19 January. The benchmark one-year government bond yield extended its increase from a two-year high, while the seven-day repurchase rate jumped amid concerns that the central bank may have refrained from rolling over previous cash injections maturing on Wednesday. The Shanghai Composite Index retreated 0.3 per cent by the close. Bloomberg