About half of the 2,800 stocks on mainland Chinese markets have been suspended from trading as companies attempt to stem further losses by sitting out the current upheaval.
The trading suspensions appear to be separate from the flurry of measures rolled out by Beijing over the past week, as the country’s communist leaders made increasingly desperate attempts to stabilise tumbling markets.
The Shanghai Composite Index has dived about 30% from its June 12 peak.
The steep decline comes after a spectacular rally that sent the Shanghai index up 150% in the previous 12 months despite slowing growth in the world’s second biggest economy.
The government fanned the rally by sending encouraging signals through state media that enticed the Chinese public to pile in to the market.
But the ensuing downturn and Beijing’s frantic response, which includes banning major shareholders from selling stakes for six months, highlights the limits of its control over the market.
Experts said the wave of trading suspensions could have the opposite of the intended effect.
Instead of stabilising the market, they could add to the selling pressure by transferring it to other shares that remain active.
It’s a naive strategy that shows “how immature the China market is,” said Jackson Wong, an associate director at United Simsen Securities.
Ordinary Chinese investors have mixed feelings about the trading halts.
“I’m worried and happy at the same time,” said Shanghai resident Ella Hong, who invested thousands into six companies starting in May, just before the market turned.
Trading in half of those stocks is now frozen, including two companies whose share prices have dropped by more than half.
“What I’m happy about is that they would not lose more in these next few days,” she said. “But what I’m worried about is that I heard once the stock comes back to the market, it would drop anyway.”
Most of the companies that have suspended trading are smaller businesses listed on the Shenzhen stock exchange.
These firms have been hit harder than the big state firms listed in Shanghai because they do not benefit as much from recent government-support measures, such as a plan for brokerages to buy stocks.
The Shanghai Composite Index rebounded 5.8% on today, continuing a pattern of roller-coaster trading.
The market turmoil is rattling neighbouring markets. Hong Kong’s benchmark tumbled as much as 8.5% on Wednesday. However, it’s unlikely to seriously affect US investors because they have limited involvement in China’s markets.
Analysts said the trading halts will make the Chinese markets more volatile in coming days.
“If you hold other shares, you think: quick, sell them now before those are frozen,” said Michael Every, head of Asia-Pacific financial market research at Rabobank.
“Anything you hold could be frozen at an unrealistic level and you can’t get out.”
“There’s no easy solution to this but China still seems to think there’s a command-economy way to control something as chaotic as an equity market. And there really isn’t.”