China slams brakes on short sellers as Xi scrambles to halt a stock market rout

China will stop lending of certain shares for short selling to arrest a slumping stock market. 

Strategic investors won’t be allowed to lend out shares during agreed lock-up periods, the Shanghai Stock Exchange and Shenzhen Stock Exchange said in separate releases following the China Securities Regulatory Commission’s statement.

“The move may have limited impact in terms of stabilizing the market” as some estimates show that such security lending balance is of insignificant size," Willer Chen, senior analyst at Forsyth Barr Asia, told Bloomberg. “Still, this is a good gesture as market participants had been calling for regulators to step in on this front.”

Authorities are taking measures following an alarming slide in Chinese stocks — the MSCI China Index has lost 60% from a February 2021 peak. Last October, limits were put on the lending of shares that executives and other key employees get in strategic placements, and other curbs were imposed. Since then, the outstanding value of stocks lent by strategic investors has dropped 40%, the CSRC said Sunday.

The MSCI China gauge scored its first weekly gain of the year last week, trimming its loss for 2024 to about 7%, after the central bank announced an imminent reserve requirement ratio cut and plans for targeted stimulus.