China state-owned margin lender returns market-steadying funds early
The China Securities Financial Corporation (CSFC) has returned ahead of schedule some of the funds it borrowed from commercial banks to stabilize the stock market, three people in the banking industry with direct knowledge told Reuters.
News of the move helps explain why Chinese stock markets fell sharply again late on Monday - marking their worst performance since 2007 - highlighting investor concern that Beijing's commitment to supporting the market may be flagging.
Chinese stock futures collapsed across the board, with some analysts saying rumors about the CSFC move had circulated among trading circles earlier in the day.
The sources requested anonymity for themselves and their employers due to the sensitivity of the issue.
The CSFC became the China Securities Regulatory Commission's weapon of choice in early July, used to channel public and private funds into a stock market that last month looked to be in free-fall, losing around 30 percent in just a few weeks before an all-out regulatory effort stemmed the bleeding.
The CSFC, which did not respond to calls requesting comment, took out loans from commercial banks which it used to buy shares in embattled Chinese stocks, helping indexes jump around 20 percent from their recent low-point - only to drop more than 8 percent on Monday.
"The CSFC last Friday already gave back some of the loans it took in the interbank market. We were discussing it, but we didn't know the reasoning behind it," one of the individuals close to the regulator said.
Another person said loans taken out from one major state-owned bank had already been repaid, a portion of which was long-term capital. Commercial banks had given the CSFC a series of shorter-term loans in the interbank market with tenors between three months and a year, another person said.
There have been other hints that Beijing has backed off from its multi-pronged intervention to support stock values, which included freezing IPOs, easing monetary policy, forcing insiders to buy stocks and preventing them from selling them, and campaigning against "malicious" short-sellers in the futures markets.
A plan to raise 100 billion yuan ($16.11 billion) by the CSFC was delayed, four people familiar with the matter told Reuters last week.
The CSFC last week also said it reduced stakes in some listed companies to bring it below a regulatory threshold, but said it had transferred, not sold, the shares.
Analysts have said China's strategy was unlikely to prove sustainable, especially if intervention was wound down prematurely, given the degree to which the prior crash rattled confidence, and given weak economic and company fundamentals that don't justify current valuations on Chinese exchanges.