Chinese stock market, resuming trade after a weeklong national holiday, fell sharply on Monday in response to sliding share prices overseas and fears of a global economic slowdown.
Fresh efforts by Chinese regulators to support the market - an announcement that margin trade and short-selling of shares would soon be launched on a trial basis, and the reopening of the medium-term corporate bills market - slowed but could not halt the drop, analysts said.
"People are worried about the impact of the global credit crisis on China, and the market is playing catch-up to overseas markets which fell sharply during the holiday," said He Weijiang at Central China Securities. "Without the latest government steps, the market would have fallen even more."
The Shanghai Composite Index ended down 5.23 percent at 2,173.738 points, just off the day's low of 2,172.569. During the week that the Chinese market was closed, the Dow Jones Industrial Average sank 7.34 percent. Falling Shanghai stocks outnumbered gainers by 781 to 143 on Monday, while turnover in Shanghai A shares was a moderate 47.2 billion yuan ($6.9 billion).
Banks were particularly weak with the biggest bank, Industrial & Commercial Bank of China, down 6.44 percent to 4.07 yuan. Oil refining giant Sinopec sank 6.46 percent to 10.00 yuan despite a slide in global oil prices over the past week, which could improve its refining margins. Major metals producer Aluminium Corp of China dropped 7.12 percent to 8.62 yuan.
Angang Steel tumbled its 10 percent daily limit to 7.92 yuan. The official Xinhua news agency reported on Friday that four steel groups - Angang, Shougang, Shandong and Hebei - were in talks to reduce their crude steel output by a total of 20 percent, in a bid to cut ore imports and support prices.
In the days before the holiday, the Shanghai index rebounded 21 percent from a 22-month low, buoyed by an unprecedented package of government measures to support the market, including purchases of shares from the market by a government fund.
In a fresh effort to aid stocks, the securities regulator announced on Sunday that a small group of brokerages would soon be allowed to do margin buying and short-selling business. It said it expected margin buying to greatly exceed short-selling, partly because brokerages had only a small amount of shares available to lend.
Meanwhile, the central bank said it would let companies resume issuing medium-term commercial bills, after a three-month suspension that was apparently due to a dispute among regulators. The official China Securities Journal said the resumption would help provide big state-run firms with money to buy shares in their listed units from the stock market.
"We expect the programme to have a significant impact on cutting corporations' funding costs and shoring up stock prices," Merrill Lynch said in a report, adding that the resumption of medium-term bills issuance would have a similar effect to an expansion of banks' lending quotas.
Brokerage shares climbed on Monday because of the margin trade announcement, with Haitong Securities, expected to be among the first batch of securities firms participating in the scheme, jumping its 10 percent limit to 23.67 yuan.
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