Short Selling and Margin Lending to Be Allowed on China's Equity Markets

In an effort to help boost its struggling stock market, the Securities Regulatory Commission in China is scheduled to sign-off on a plan that will allow short selling and margin lending (see Bloomberg article).

The government is hoping that the changes will add fresh capital to the equity markets. China has also recently eliminated its tax on stock purchases and has relaxed company buyback rules.

The move is in stark comparison to orders in the U.S., Europe, and Australia that have recently placed limits on short-selling.

It is ironic that China, often criticized for being less open, appears to be offering free market solutions for its declining markets at the very time other economic superpowers are increasing trading restrictions within their own markets. The next year should be interesting, and telling, as countries about the globe take different approaches towards bolstering their economies and strengthening their capital markets.

Comments

[huangthomas:]

China has no financial derivatives markets, which finally got us into trouble. Prohibiting shorts on financials is a stop gap method to stabilize the market turmoil created by financial derivatives. The comparison is mute. China is doing the right things to establish a real market for the counter-balancing forces to play out in the market places.

2008 Sep 28 10:35 AM