Beijing meets banks to calm frayed nerves after three-day stock market rout wiped out US$800 billion in value

China’s securities regulator convened executives of major investment banks on Wednesday night, in an attempt 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 the China Securities Regulatory Commission (CSRC) vice-chairman, Fang Xinghai, people familiar with the matter said, asking not to be named as they were 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 people said.

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

China’s official Xinhua News Agency said in an article late on Wednesday that recent policies targeting internet platforms and after-school tutoring were aimed at protecting online data security and social welfare rather than outright curtailing these industries. The securities regulator had an “open attitude” toward companies’ listing venues, Xinhua 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,” said Adam Montanaro, a London-based emerging-market fund manager at Aberdeen Standard Investments.

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 4.5 per cent. The Nasdaq Golden Dragon China Index, which tracks Chinese stocks listed in the US, jumped 9.3 per cent in its biggest rally since November 2008. The CSRC did not respond to a request for comment.

Wednesday’s reprieve followed a three-day plunge that erased nearly US$800 billion 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.

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

Source: Bloomberg