BEIJING — China’s leaders are winding down a strategy of trying to push up slumping stock prices by spending billions of dollars to buy shares.
After the Chinese market benchmark soared to a peak June 12 then reversed course and plunged 30 percent, Beijing reached back to the era of central planning and intervened directly. Big shareholders were barred from selling, and state-owned brokerages promised to buy. State banks lent billions of dollars to a government finance company to support prices.
That prompted criticism that Beijing was disrupting the market and might be delaying changes in financial policy needed to support China’s slowing economy.
Now, with no formal announcement, there has been no large-scale buying by the China Securities Finance Corp. despite four days of precipitous declines that wiped 22 percent off the Shanghai Composite Index.
“The market self-adjustment is a good thing,” said JP Morgan economist Haibin Zhu. “The positive sign is the ‘national team’ no longer intervenes and keeps buying, which was causing market distortion.”
So what other options do Chinese authorities have to calm markets?
After weeks of turmoil, the best tactic might be to do nothing, according to financial analysts.
Inaction “would likely be viewed favorably at this stage,” said Linda Yueh, an economist at the London Business School. “Previous interventions have heightened rather than subdued the volatility.”
The previously little-known CSFC, the pillar of the government’s intervention, never disclosed what and when it bought or how much it spent. But Chinese media say state-owned banks have lent the company $240 billion.
Its last large-scale action might have occurred last Wednesday, when the Shanghai index fell 5 percent but reversed course in the last minutes of trading to close up 1.2 percent. Analysts said that probably was the work of the CSFC and its war chest.
